ZM valuation

Investment Analysis Clubs Saul’s Investing Discussions
21

I know some would disagree, but I don’t think any other tele-meeting offering can compete with zoom in ease of use, which is absolutely key right now.

I agree this is key. People are mentioning “Zoom” in conversations who 4 days ago never knew it existed, and most importantly, it “just works” for them. Heard this morning that all my ex’s friends in the Netherlands are now hosting Zoom “wine chats” instead of going out. Last week, this wasn’t a thing.

We’ve been using it at work for months now, and today is the first day we’ve had bandwidth issues. But I’m not sure it’s going to negatively impact perceptions. The fortuitous timing for Zoom in this crisis is that everybody is going to understand growing pains. If someone’s call doesn’t work, they know it’s because everybody is trying to do the same thing at the same time. (Of course, Zoom better stay of top of this, or it will be an explosive finale…)

I’m tormented about the price jump today. I sold a lot of other things last week just to make sure I had cash…either to live for a while if necessary or jump into an opportunity. So at this level Zoom is a major part of my portfolio. It’s probably not in a healthy state.

But alternately, I’ve never seen mindshare adopted this quickly. Average people are using it to replace physical socializing, and I wonder if that will even revert much after this. There’s definitely a learning curve to hanging out virtually…I used to have semi-regular Skype chats with far-flung friends, and it always seemed to take a while for people to go through some kind of “performance anxiety” before finally relaxing. But that just takes practice, and now, people are practicing unwittingly.

So for now I’m going to hang in there with the stock. Probably not prudent, but I’m really curious…

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22

I know some would disagree, but I don’t think any other tele-meeting offering can compete with zoom in ease of use, which is absolutely key right now.

I agree this is key. People are mentioning “Zoom” in conversations who 4 days ago never knew it existed, and most importantly, it “just works” for them. Heard this morning that all my ex’s friends in the Netherlands are now hosting Zoom “wine chats” instead of going out. Last week, this wasn’t a thing…

But alternately, I’ve never seen mindshare adopted this quickly. Average people are using it to replace physical socializing, and I wonder if that will even revert much after this.

Thanks so much, jay, I see that you have been a member of the board since 2015, but have only posted a dozen times or so. Thanks for your input, and I agree that the mindshare adoption is amazing. Please keep posting.

Saul

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23

Hi, I’m new here. Just to add to what everyone said, I’m shocked by the types of people who have been sending me Zoom invites. People that barely use technology. I’m honestly not terribly impressed by the platform but the fact that it works with so much demand and is so simple to use is far more important. My Taichi teacher is using it for virtual lessons, Crowdstrike is using it for company-wide calls and my friends in Europe decided to have a Zoom chat with me. The key question if whether they will monetize this incredible demand and not mess something up. So far so good but the execution risk is very high here.

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My Taichi teacher is using it for virtual lessons
Now that’s a really good idea.

Zoom has exploded in users, but many at present are free. Do we have any estimates of the percent of paying customers versus those who have accepted Zoom’s kindness, but won’t continue after things have subsided? I am sure there will be some residual customers. How many translates to how Zoom does as we start to hear the “all clear” signal.

Loss of customers: Church-goers will go back to the buildings, schoolkids will go back to the buildings, etc.

Some gains in customers: Some new online schools will pop up, because a lot of parents are irritated with the low (non-existent) level of discipline in the US public schools, and see upsides to home-schools. Home-school done right is a good thing. The valedictorian and other top students in my son’s college had all been home schooled.

Businesses who weren’t using video meetings before probably ran to Zoom. Many will stay to some degree. Air travel isn’t that much fun unless you are a sardine. But most online “meetings” don’t really require a face to watch. They require audio, desktop-sharing and file-sharing. I qualify that statement by saying I am an engineer, but don’t particularly like to leave my laptop camera on. I did however, just participate in a Teams meeting where our manager wanted to see everyone’s face to see “how you are really doing”.

None of these thoughts contain numbers.

For now, I like the ride. Thanks, Mr. Saul

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25

I don’t think I made my point clearly enough. The problem is that Zoom is already making $623 million per year, so going forward it will be very hard to grow at 100%+ because of their SCALE. Saul provided this chart:

Zoom Fiscal Year Revenue
2017 61 million
2018 151 million
2019 331 million
2020 623 million

The question is what comes next in this sequence. SHOP had 673 million in 2017 (a little more that ZM but they were only growing at 73% vs ZM’s 88%). What came next for SHOP?

2017 - 673 million (73% growth)
2018 - 1073 million (59% growth)
2019 - 1578 million (47% growth)

Even 50 or 60% growth at this scale is incredible. But you’re expecting ZM could grow at 200% or better next year, and then 100% after that. How wild is that?

Did Netflix do it? Nope. Salesforce? No way. Not even Microsoft! I only know of one software company that has EVER grown that fast at that scale.

Google
2002 - 410 million
2003 - 1420 million (246% growth)
2004 - 3140 million (121% growth)

and even they slowed down over the next few years:

2005 - 6070 million (93% growth)
2006 - 10490 million (73% growth)
etc.

So from what I can tell you’re expecting Zoom to be the next Google. Seems like asking a lot.

Bear

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26

My post may get lost in the frenzy here but I just wanted to express a simple point (simple is the basis for much of my investing):

I don’t need to own everything, I don’t need to own the greatest stock in the world if I’m not comfortable with it… I have more great companies I want to invest in than I have money to invest and that’s where my focus will remain.

I bought a little bit of stuff last week (not Zoom). Great companies, great future, I’ll get great returns.

Kudos to the Zoom-hair-on-fire folks. I think it’s another excellent company. But I’m not comfortable with the valuation so I’ll pass for now. I should mention that I was uncomfortable with Amazon’s valuation for years but finally bought some at $300 and it’s done well. But I didn’t need Amazon to retire early. And as good as Zoom appears to be, it’s no Amazon.

That’s all… back to the frenzy. :wink:

Rob
Rule Breaker / Market Pass / Supernova Starshot Home Fool & STMP/MTH Maintenance Coverage Fool
He is no fool who gives what he cannot keep to gain what he cannot lose.

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27

Even 50 or 60% growth at this scale is incredible. But you’re expecting ZM could grow at 200% or better next year, and then 100% after that. How wild is that? Did Netflix do it? Nope. Salesforce? No way. Not even Microsoft!

But none of them ever had an existential event like this that we are living through, that changed the world in their favor on a dime.

Bear, haven’t you been reading what everyone has been recounting? In a month Zoom has gone from being a rapidly growing little company that most people never heard of, to the company probably most talked about in the world. People are talking about friends having wine parties by Zoom in Holland, and about their nine year old kids getting a paying account, and about is Zooming with friends back home in the Czech Republic from The US, and about their congregation using it, and Harvard is using it, and on and on and on. Sorry, but that never happened overnight to Netflix, or Salesforce, or Microsoft. It is just a question of having the best and easiest product at the right time when it was sorely needed, and now most everyone is using it.

I said there are probably four times as many users now as there were at the end of December, but do you realize how MUCH of an UNDERESTIMATE that is? Just think of all those grade school and high school and college kids who are using it, and religious congregations, and businesses like Crowdstrike, and people partying on Zoom, and talking to relatives and friends on Zoom when they are stuck in their homes, etc, etc… There are probably eight or ten times as many users now as at the end of December! Obviously they won’t all stick, but Zoom being the go-to name for video conferencing and video communication will stick!

Of course Zoom could grow revenue 200% this year. They were going to grow at 80% without all this!!!

Best,

Saul

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28

I don’t think I made my point clearly enough. The problem is that Zoom is already making $623 million per year, so going forward it will be very hard to grow at 100%+ because of their SCALE. Saul provided this chart:

Zoom Fiscal Year Revenue
2017 61 million
2018 151 million
2019 331 million
2020 623 million

The question is what comes next in this sequence. SHOP had 673 million in 2017 (a little more that ZM but they were only growing at 73% vs ZM’s 88%). What came next for SHOP?

2017 - 673 million (73% growth)
2018 - 1073 million (59% growth)
2019 - 1578 million (47% growth)

Even 50 or 60% growth at this scale is incredible. But you’re expecting ZM could grow at 200% or better next year, and then 100% after that. How wild is that?

Did Netflix do it? Nope. Salesforce? No way. Not even Microsoft! I only know of one software company that has EVER grown that fast at that scale.

No, I’m not expecting Zoom to be the next Google. I’ve talked often about the growth curve, the sigmoid curve, the “S” curve. To recapitulate briefly, the “S” has two inflection points: at around 15% market penetration comes the curve at the bottom of the “S” forming the “curve in the hockey stick.” The top inflection point comes at around 85% market penetration when growth slows and successful growers become cash cows.

What is lacking in Bear’s argument are references to market size, the argument assumes a more or less static or slow growing market. What changed in 2020? Covid-19 doubled or tripled the market! Covid-19 created or amplified a bunch of new markets for teleconferencing, not just corporate stuff but medicine, education, and maybe other social activities. Covid-19 is the catalyst for a paradigm shift in human interaction.

I was so confident last Friday that I switched to a five position Covid-19 portfolio up today 11%. posted yesterday:

For the time being I have placed my bets on five stocks that have done rather well in the current crisis, more or less in order of confidence:


ZM    Zoom Video Communications, Inc.
TDOC  Teladoc Health, Inc.
EVBG  Everbridge, Inc.
TEAM  Atlassian Corporation Plc.
DOCU  DocuSign Inc.
*[https://softwaretimes.com/pics/covid-19-03-20-2020.gif](https://softwaretimes.com/pics/covid-19-03-20-2020.gif)*

https://discussion.fool.com/totally-unnecessary-for-many-visits-…

Denny Schlesinger

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29

Usage may be up, but how does that translate into revenue…?

Zoom is free for the first 40 minutes…why would I need to subscribe if I can use it for free in 30 minute increments and log back in as needed?

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30

In a month Zoom has gone from being a rapidly growing little company that most people never heard of, to the company probably most talked about in the world. People are talking about friends having wine parties by Zoom in Holland, and about their nine year old kids getting a paying account, and about is Zooming with friends back home in the Czech Republic from The US, and about their congregation using it, and Harvard is using it, and on and on and on. Sorry, but that never happened overnight to Netflix, or Salesforce, or Microsoft. It is just a question of having the best and easiest product at the right time when it was sorely needed, and now most everyone is using it.

I said there are probably four times as many users now as there were at the end of December, but do you realize how MUCH of an UNDERESTIMATE that is?

Saul says it so beautifully, no “S” curve required! :wink:

Denny Schlesinger

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31

Respectfully, some times so much working out and analyzing why, no way, impossible, overvalued, etc, etc does one no good at all. Jumping on the train for a good ride until it runs out of steam is the way to go at present. Might get bumpy along the way(what else is news) but could also take you where you want to go faster than most other trains. Make a few stops along the way, or just get off at the next station. puff puff, zoooooooooom. zoom.

From $75.00 to ???

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32

For all those people who worry about all the free users, you are missing the large number of paid customers that are signing up now and will be in the coming 4-6 weeks. These customers didn’t exist as they wold have never tried online meetings. The market is basically expanding and ZM is taking a big chunk of it.

https://twitter.com/issiromem/status/1242202345766670336

"Just heard of law firm having first mtg of 68 partners on Zoom

Was so much better than in-person mtgs they decided to continue w/Zoom even after normalcy returns

The longer the lockdown persists, the more work habits will change, and the more cities could fundamentally change"

I conducted my first online singing lessons yesterday. I was in the camp who had vowed never to conduct singing classes online as I believe a student learns more in the presence of the teacher. But now I am open to it. I was not expecting it to be that smooth or that productive. In fact I am thinking, going forward, if sometimes a student is unable to come to the class, they should have an option of joining in so that they can stay up to date.

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33

I agree with foolChandra. I just bought a yearlong Zoom subscription, and several people I know have upgraded their existing subscriptions to accommodate larger gatherings. Also, my Unitarian Society had it second Zoom service yesterday. The first one had about 50 attendees, with the numbers growing closer to 70 for the second time…and this in a congregation where the average age is about 60. I suspect Zoom will now be used for mid-week meetings, to hold services that would normally be cancelled due to inclement weather, and probably other things, too, now that this crisis has brought so many more people up to speed. As I discovered today in a Zoom acting class, while it’s not the same as real life, the platform does offer some unique advantages that people will still want when the crisis recedes.

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34

alacartespirit,

If you don’t mind saying, how much did your yearlong subscription cost?

Thanks.

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35

I paid about $135 for the Pro plan (regular price is $149.90, paid in advance for a year, and I had a coupon code). Here are their prices: https://zoom.us/pricing

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36

just to add to wild scenarios, here is roller-coaster scenario that is also somewhat likely (if not highly likely)

Its very conceivable that this quarter Zoom will see its user base increase by 10x and revenue increase by 3x… just this quarter!

But what happens next quarter… with entire world already on ZOOM this quarter, at-best it can grow another 20%…

and unless the world is already eaten up by Covid-19, people will start going back to office wearing masks and gloves than sitting home… and ofcourse schools and universities and yoga classes and such will get back to on-premise model because thats the only way they can sustain their brand and business… if they stay online only model, their business get eaten up by YouTube… this is why universities never offer their prime classes online… all these businesses thrive on in-rooom social energy…

So for sure Q3 will see sequential decline EVEN if Covid-19 comes back… because we will know how to socialize and protect ourselves better…

So… lets assume through all these zigzag, at the end of the year Zoom averages revenue to 5x of $663M last year… that translates to $3.3B… and 2021 gets still gets to another 20% to 30% growth even though whole world has already used Zoom in 2020…

So at the end of 2021, you are looking at <$4B revenue and you are paying >$40B for it today!!

BTW - this roller coaster or zigzag scenario is not un-common… Couple days back Teladoc announced they have seen 75% rise in tele-visits… consistent with peak flue season… though it was unsaid but understoood that number of visits go down after peak of the flue season.

Having said this, I do believe that Zoom can even go to $200 or higher over next two to three weeks but that would be momentum based on linear projections that may be hard to materialize.

I have a small position and will likely keep it till there is visible end to this crisis…

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37

My son is a second year student at Virginia Tech with 25k students and he has a zoom account since he joined. He barely used it before but his classes are on Zoom now. Also, the agency with almost 2,000 resources where I work Zoom was rolled out few months ago but using heavily now.

It appears to me most of major universities and enterprises already have Zoom but they increased the usage now.

Not sure if Zoom get paid by per user or by usage.

All individual users I don’t think they ever pay and K-12 schools are getting it for free.

My question is whether heavy usage in this period by large enterprises and universities is proportionately translated to the revenue.

38

My daughter is the nine year old who signed up for an account. It was a free account, which you need to host a meeting. Still, she never heard of online meetings a week ago, and now she is hosting them. Even though she is not paying, I agree that zoom will become very well known by everyone on the planet because of current events.

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39

Saul,

You may know this, but the Fool has been utilizing Zoom for videos in the past week or so. They have made a bunch of live videos where Fools can ask questions and such. They may have two or three people on screen, they may share a computer screen etc.

They talk like they love Zoom and are planning to figure out different ways to utilize Zoom.

Fool on,

mazske

Long ZM

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40

Something people may not know is that Zoom has seamless integration with Epic, the electronic health record system for ~80% of US hospitals last I looked.

We use Epic. Our hospital, however, did not have enough “hours” to ramp up usage for telehealth visits after this Covid19 business.

Currently I am just using the free Zoom to do visits but we plan to go full Zoom integration at some point after this all settles down.

It’s going to be large business for them I believe. That said, it has gotten rich but it and CRWD have me up for the year so I’m thankful for it!

MC

Real quick, we are at 97% negative Covid testing in my area. 5 hospitalized, 2 intubated. Some responders to the meds you’ve seen on TV. We are prepared.

Sorry Saul, thought people might want a real life perspective.

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