Zoom Expectations

Investment Analysis Clubs Saul’s Investing Discussions
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I think it’s important to keep expectations for Zoom in reality mode. Look, this April quarter was divided into two equal parts. The first month and a half was the Old Zoom, and the second month and a half was the New Zoom. Thus for the first half of the quarter Zoom probably grew roughly 80% (maybe a couple of percent less. For the second half of the quarter, even if revenue grew 200%, the two halves would average to “just” up 140%. If revenue grew a huge 250% in the second half of the quarter, 250 and 80 average to up “just” 165% for the quarter. That’s certainly the absolute maximum you can imagine.

On the other hand, the July quarter (May, June, July), will be all the New Zoom, and revenue up 200% or 250% will mean up 200% or 250% for the whole quarter.

I hope that this helps,

Best,

Saul

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I think it’s important to keep expectations for Zoom in reality mode. Look, this April quarter was divided into two equal parts. The first month and a half was the Old Zoom, and the second month and a half was the New Zoom. Thus for the first half of the quarter Zoom probably grew roughly 80% (maybe a couple of percent less. For the second half of the quarter, even if revenue grew 200%, the two halves would average to “just” up 140%. If revenue grew a huge 250% in the second half of the quarter, 250 and 80 average to up “just” 165% for the quarter. That’s certainly the absolute maximum you can imagine.

On the other hand, the July quarter (May, June, July), will be all the New Zoom, and revenue up 200% or 250% will mean up 200% or 250% for the whole quarter.

I hope that this helps,

Best,

Saul

Evidence that Saul can err and is human!

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Thus for the first half of the quarter Zoom probably grew roughly 80% (maybe a couple of percent less. For the second half of the quarter, even if revenue grew 200%, the two halves would average to “just” up 140%. If revenue grew a huge 250% in the second half of the quarter, 250 and 80 average to up “just” 165% for the quarter. That’s certainly the absolute maximum you can imagine.

Gee, I underestimated by 4%. They hit up 169%.

Saul

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Gee, I underestimated by 4%. They hit up 169%.

Saul

hahaha Saul’s prudent/conservative guidance :slight_smile:

When you throw in all the other metrics of cash flow, free cash flow, earnings, customers, NER, my gosh… might be the best report I’ve ever seen. And like you mentioned many times, only about 6 weeks worth of pandemic numbers within the quarter.

Their guidance for the already includes churn and still is $1.8 billion for the year (and $500 million <!!!> for next quarter, which we know the will easily beat as well.

Best,
Matt

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I relent.
The results are better than I expected. I still think they are overvalued, but it is pretty obvious that if you listen to me on this topic, you would/could miss out on more gains in ZM.

https://www.marketwatch.com/story/zoom-video-earnings-and-sa…

Revenue improved 169% to $328.2 million from $122 million a year ago. Analysts surveyed by FactSet had expected adjusted earnings of 9 cents a share on sales of $230.6 million.

“The COVID-19 crisis has driven higher demand for distributed, face-to-face interactions and collaboration using Zoom,” Zoom Chief Executive Eric Yuan said in a statement announcing the results. “Use cases have grown rapidly as people integrated Zoom into their work, learning, and personal lives.”

Executives expect the astounding growth to continue: Zoom’s forecast calls for $495 million to $500 million in the fiscal second quarter, more than double the average analyst estimate. For the full year, Zoom now expects revenue of $1.78 billion to $1.8 billion, nearly double Zoom’s previous annual forecast for a maximum of $915 million in yearly sales.

I had predicted with napkin math that they would hit an annual runrate of $1.5b, which puts them at about a 35 P/S. The question would have become “did they pull all their growth forward” due to covid, and could they actually expect low-to-no growth 12-15 months from now, when WFH ebbs and we (presumably) have a vaccine and things are as back to normal as they are going to get?

But if they forecasted $1.8b, we can assume they expect to beat that number, so we could be looking at $2b runrate, getting them under a 30 P/S at current mkt cap at end of this year.

This was a tough one for me. Perhaps it is just the circles I travel, but all my meetings, internally and externally, with large enterprise clients, are not Zoom. Was hard to invest in something when evidence tells me otherwise. You can’t own them all. Congrats to Saul and the ZM longs though.

Dreamer

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Gee, you scared me Saul. Haha however still love the results and now PS dropping into 30’s X(according to ZM’s estimate) but I will use forward PS, I think probably will drop to 20’s X. Who gonna say ZM is expensive? LOL

Rick

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“just” up 140%. If revenue grew a huge 250% in the second half of the quarter, 250 and 80 average to up “just” 165% for the quarter. That’s certainly the absolute maximum you can imagine.

Gee, I underestimated by 4%. They hit up 169%.

Saul

Saul,

I guess you’re going to have to tweak that imagination thing…

Nicely done.

Gordon

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I can only say I’m pretty floored. I was pretty confident that all of the active participant growth would not translate into as much revenue growth as people thought. Here I am, eating my words!

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Just wait until analysts start raising all of their estimates.

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This was a tough one for me. Perhaps it is just the circles I travel, but all my meetings, internally and externally, with large enterprise clients, are not Zoom. Was hard to invest in something when evidence tells me otherwise. You can’t own them all.

There is something to be said about being too close to a situation. I’m the same way with medical stocks, but hopefully getting better. Even if you know something isn’t the best product or the most effective, it’s still worth listening to the masses. When radio shows, sports teams, small and large businesses alike are outwardly saying they have Zoom meetings, I pay attention. I get that many large companies, especially ones that already had remote workforces either at home or different offices, will use the big name alternatives like WebEx or Teams – my wife (who has been told she is now permanently work from home for a subsidiary of a very large health care insurer) uses WebEx for conferences, recently started using Teams, and still uses a far too slow VPN to do work on far too large Excel files – but they have been using those products for years and as part of a huge company they are stuck with it because IT inertia is a real thing.

Saul, I hope you understand that I was joking about your “error”. It’s amazing how close you came to the real number, and just as amazing that Zoom beat what you threw out as the upper limit.

Guiding for 230% growth at the top line, 350% might be more realistic, and $2b for the coming year a real possibility – amazing.

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Good call on the revenue Saul- you guessed 165%, actual was 169% growth

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This was a tough one for me. Perhaps it is just the circles I travel, but all my meetings, internally and externally, with large enterprise clients, are not Zoom.

Me too. My company expressly forbids using Zoom for company business or installing it on company hardware.

But I don’t begrudge the ZM longs. I, too, congratulate them. Just because I am not comfortable with their business situation means nothing, except to me. I wouldn’t even have investigated the company were it not for this board, so I thank you all for that. And good luck to all ZM longs. Sincerely.

1poorguy

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Awesome! Thanks for the quick thoughts all! I’m still working and wouldn’t have gotten any news otherwise until later :wink:

Did anyone see any numbers on the consumer subscription side?

…I get that many large companies, especially ones that already had remote workforces either at home or different offices, will use the big name alternatives like WebEx or Teams…

I wouldn’t take this as a given. First I would argue Zoom is the big name now. That aside, I know of one company that moved from MS Teams to Zoom because they found the quality was so much better during a rigorous test. I know some organizations may stick with MS Teams because they got it bundled with other things for free (or a sponsorship; anyone watch “The Voice” using MS? many embarrassing moments there). My kid’s school district is one such organization. It was more about their IT department not wanting to change.

This brings me to the real reason I place a high value on all those individual user experiences. Users can push a company to make the change, especially when they have formed an emotional connection. For example, someone popped open a Google Meet today (we have GSuite too) and it was awful! Plus I didn’t look as good and I had to hurriedly fix my real life background! I immediately missed my familiar backgrounds in a very real emotional way. I kept hitting my hotkey to un-mute to talk and then stop and find the UI button with my mouse. Of course I turned on a little healthy peer-pressure to get him to use Zoom next time because that is what I have grown used to and it is now the benchmark other systems must surpass or be flamed.

Focusing on enterprise growth, I can easily see a second significant wave of landing and expanding coming over the next 3-6 months.

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Stories about companies that don’t now have Zoom, especially if it is actually banned, merely confirm the existence of future market into which to expand.

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I think two aspects of Zoom offerings are currently underestimated as future net revenue retention drivers: Zoom rooms and Zoom phone. Many companies just start to understand/experience the benefits of a well built out video conferencing structure. They might have ordered Zoom licenses to host meetings, but once part of the work force returns to the office, there will be more and more need to have not only single machine to machine licenses/installations, but really well working conference rooms. And since everybody is already used to Zoom and highly satisfied, there is good chance the additional license and infrastructure will be based on Zoom too.

And once everyone is used to work within the Zoom app, be that on your own machine, the phone or in the conference room, it makes a lot of sense to move the phone systems to Zoom too. Phone, collaboration and video conferencing from one provider.

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