Zoom Crushes Earnings

Investment Analysis Clubs Saul’s Investing Discussions
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–Highlights: revs up 15% QoQ!
–Non Gaap Net Income of 361mm, 839% YoY increase
–Enterprise Cust count: 1644. up from 1289 last quarter and 988 the quarter before
–Lowlights: Guidance is weak, but it was also weak last quarter. With this new context, it just sounds like prudent sandbagging to me.

I underestimated them big time and look forward to getting more details on the conference call!

Fourth quarter total revenue of $882.5 million, up 369% year-over-year; full fiscal year total revenue of $2,651.4 million, up 326% year-over-year
Fourth quarter GAAP income from operations of $256.1 million, up 2327% year-over-year; full fiscal year GAAP income from operations of $659.8 million, up 5097% year-over-year
Fourth quarter non-GAAP income from operations of $360.9 million, up 839% year-over-year; full fiscal year non-GAAP income from operations of $983.3 million, up 1009% year-over-year
Fourth quarter operating cash flow of $399.4 million, up 993% year-over-year; full fiscal year operating cash flow of $1,471.2 million, up 869% year-over-year
SAN JOSE, Calif., March 01, 2021 (GLOBE NEWSWIRE) – Zoom Video Communications, Inc. (NASDAQ: ZM), a leading provider of video-first unified communications, today announced financial results for the fourth quarter ended January 31, 2021.

“The fourth quarter marked a strong finish to an unprecedented year for Zoom. In FY2021, we significantly scaled our business to provide critical communications and collaboration services to our customers and the global community in response to the pandemic. We are humbled by our role as a trusted partner and an engine for the modern work-from-anywhere environment. Our ability to rapidly respond and execute drove strong financial results throughout the year,” said Eric S. Yuan, Founder and Chief Executive Officer of Zoom. “As we enter FY2022, we believe we are well positioned for strong growth with our innovative video communications platform, on which our customers can build, run, and grow their businesses; our globally recognized brand; and a team ever focused on delivering happiness to our customers.”

Fourth Quarter Fiscal Year 2021 Financial Highlights:

Revenue: Total revenue for the quarter was $882.5 million, up 369% year-over-year.
Income from Operations and Operating Margin: GAAP income from operations for the quarter was $256.1 million, compared to GAAP income from operations of $10.6 million in the fourth quarter of fiscal year 2020. After adjusting for stock-based compensation expense and related payroll taxes, and acquisition-related expenses, non-GAAP income from operations for the fourth quarter was $360.9 million, up from $38.4 million in the fourth quarter of fiscal year 2020. For the fourth quarter, GAAP operating margin was 29.0% and non-GAAP operating margin was 40.9%.
Net Income and Net Income Per Share: GAAP net income attributable to common stockholders for the quarter was $260.4 million, or $0.87 per share, compared to GAAP net income attributable to common stockholders of $15.3 million, or $0.05 per share in the fourth quarter of fiscal year 2020.

Non-GAAP net income for the quarter was $365.4 million, after adjusting for stock-based compensation expense and related payroll taxes, acquisition-related expenses, and undistributed earnings attributable to participating securities. Non-GAAP net income per share was $1.22. In the fourth quarter of fiscal year 2020, non-GAAP net income was $43.2 million, or $0.15 per share.
Cash and Marketable Securities: Total cash, cash equivalents, and marketable securities, excluding restricted cash, as of January 31, 2021 was $4,244.7 million.
Cash Flow: Net cash provided by operating activities was $399.4 million for the quarter, compared to $36.6 million in the fourth quarter of fiscal year 2020. Free cash flow, which is net cash provided by operating activities less purchases of property and equipment, was $377.9 million, compared to $26.6 million in the fourth quarter of fiscal year 2020.
Full Fiscal Year 2021 Financial Highlights:

Revenue: Total revenue for the fiscal year was $2,651.4 million, up 326% year-over-year.
Income from Operations and Operating Margin: GAAP income from operations for the fiscal year was $659.8 million, compared to GAAP income from operations of $12.7 million for fiscal year 2020. After adjusting for stock-based compensation expense and related payroll taxes, expenses related to charitable donation of common stock, and acquisition-related expenses, non-GAAP income from operations for the fiscal year was $983.3 million, up from $88.7 million for fiscal year 2020. For the fiscal year, GAAP operating margin was 24.9% and non-GAAP operating margin was 37.1%.
Net Income and Net Income Per Share: GAAP net income attributable to common stockholders for the fiscal year was $671.5 million, or $2.25 per share, compared to GAAP net income attributable to common stockholders of $21.7 million, or $0.09 per share for fiscal year 2020.

Non-GAAP net income for the fiscal year was $995.7 million, after adjusting for stock-based compensation expense and related payroll taxes, expenses related to charitable donation of common stock, acquisition-related expenses, and undistributed earnings attributable to participating securities. Non-GAAP net income per share was $3.34. In fiscal year 2020, non-GAAP net income was $101.3 million, or $0.35 per share.
Cash Flow: Net cash provided by operating activities was $1,471.2 million for the fiscal year, compared to $151.9 million for fiscal year 2020. Free cash flow, which is net cash provided by operating activities less purchases of property and equipment, was $1,391.2 million, compared to $113.8 million for fiscal year 2020.
Customer Metrics: Drivers of total revenue included acquiring new customers and expanding across existing customers. At the end of the fourth quarter of fiscal year 2021, Zoom had:

Approximately 467,100 customers with more than 10 employees, up approximately 470% from the same quarter last fiscal year.
1,644 customers contributing more than $100,000 in trailing 12 months (“TTM”) revenue, up approximately 156% from the same quarter last fiscal year.
A trailing 12-month net dollar expansion rate in customers with more than 10 employees above 130% for the 11th consecutive quarter.
Financial Outlook: Zoom is providing the following guidance for its first quarter of fiscal year 2022 and its full fiscal year 2022.

First Quarter Fiscal Year 2022: Total revenue is expected to be between $900.0 million and $905.0 million and non-GAAP income from operations is expected to be between $295.0 million and $300.0 million. Q1 non-GAAP diluted EPS is expected to be between $0.95 and $0.97 with approximately 307 million non-GAAP weighted average shares outstanding.
Full Fiscal Year 2022: Total revenue is expected to be between $3.760 billion and $3.780 billion and non-GAAP income from operations is expected to be between $1.125 billion and $1.145 billion. Full fiscal year non-GAAP diluted EPS is expected to be between $3.59 and $3.65 with approximately 311 million non-GAAP weighted average shares outstanding.

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Apologies, was doing this on the fly in excel. QoQ rev growth was 13.6%, not 15%. 777 in Q3, 882.5 in Q4. (882.5-777) / 777 = 13.6%

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Concerned about the Q1 guidance. With a similar beat 70M beat, the QoQ for Q1 would be 10.5% which annualizes to around 50%. BIG slowdown. Waiting to hear call but might be time to sell.

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At today’s closing price, ZM is selling for about 80x trailing free cash flow. This is a reasonable number in my opinion. Certainly doesn’t make me want to sell.

Don

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Especially when they’re “only” continuing to grow sales at 50%.

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Its more about how big the slowdown is. Its probably most likely due to the law of large numbers and such. However, going from QoQ growth rates annualized in consecutive quarters from triple digits, to mid 80s, to 66, to 50… No idea if 50 will be stable or continue to go down.

At this point, I’d much rather own NET (which I sold out of) than ZM as it is more likely that NET will grow at 50%+ for a longer timeframe.

Add this to the long list of lessons learn that I should have learned from Saul much earlier on. He saw that decreased growth much earlier than I did. I thought they might be able to sustain 80s or slow slower with the help of Zoom Phone. As he or some other posters said a while back, at the revenue rate ZM currently has, newer products like Zoom Phone will have a more difficult time making an impact. Perhaps whoever said that was right on the money.

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“At this point, I’d much rather own NET (which I sold out of) than ZM as it is more likely that NET will grow at 50%+ for a longer timeframe.”

FinallyFoolin, I respectfully disagree here. NET has already slowed to 50% and is continuing to decrease (latest quarter was 10.5% QoQ which annualizes to 49%). Prior to this year, where NET barely broke 50% rev growth even with covid tailwinds, it was always growing in the 40% range (with the exception of 2016-17 where they grew revenues 59% off of a much smaller base of $85m)

With the way both are valued currently, I would much prefer ZM over NET. Until the edge/workers story (or some of their other recent new offerings and products) start to generate revenue, I think the risk reward is not there for NET. I have a 5% allocation to ZM and 0 to NET.

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I think this is all a bit more nuanced than a simple 50% growth outlook and definitely not a clear cut story.

Firstly the full year guidance is ~42% growth I believe.

Secondly half of next quarter is going to be pre-pandemic lap and half will be pandemic impacted so a mix of triple and double digit year on year growth - certainly on average higher than 50% which means the rest of the year is certainly guided to be lower than the 42% average across the year.

Thirdly you have the takeoff of Zoom Phones growing from a larger and larger base - until at some point it starts lapping its own compares.

Fourthly you have the transitioning of previously free VC services to education sector becoming monetized and the possible upside but also churn that that brings.

Cloudflare feels closer to infrastructure as a service whilst Zoom appears to be transitioning from SaaS to a business PaaS.

I honestly think they are too different in choices to compare on revenue growth terms alone. I would think though that Zoom has the larger TAM if you factor in how it can be the business platform as a service the way that Salesforce dot com is.

Ant

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Not sure why NET is in the mix in this conversation, but according to Cloudflare own investor relation page their CAGR for 2016-2020 was 50%. So if not true, someone need to send them a note to correct this.

There are many products that Cloudflare offers for free in order to build exposure and leverage the free tier for testing, product development, etc. The flywheels are massive and in no way or shape can be compared to Zoom. It’s great for Zoom that they want to become a platform, but Cloudflare is already a platform gaining 50k developers per quarter with a goal to gainn 300k new developers per quarter. I’m invested in both, Zoom is a proove me story at this point, and certainly complex to predict their revenue past covid19, they will also face tough competition from existing players in the communication market - I don’t see easy land and expand strategy here.

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I had some regret selling the rest of my medium sized ZM position on the open, but looks like it was a good decision based on this brutal all day selloff. No offense to Zoom, but nothing is good enough for the market with regards to these stocks after their earnings right now. CRWD is next to walk the plank unfortunately…

I will hold my cash from ZM sale until the tide turns on this sector before re-allocating it. Looks like there will be more blood with how these stocks are trading

Bnh

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