Zoom - how much is enough?

Zooming On

Everybody knew that Zoom’s growth would inevitably slow at some point, materially, and no company can maintain >300% growth YoY forever. With Zoom’s growth decelerating from +102% sequential growth in Q2 (1565% annualised!) to +17% in Q3 (87% annualised), we are left wondering where Zoom’s growth will come out at over the next 12 months and beyond. For me the question is now - how much is enough?

It is reasonable to expect +17% sequential growth as a cap on Zoom’s growth going forwards, with the pandemic tailwinds still behind it. I had already posted my initial thoughts on Zoom’s Q3 here: https://discussion.fool.com/q3-thoughts-zoom-crwd-and-others-346…. I had expected >$800m, the increasing 38% mix of customers <10 employees is a concern, and I reduced my (outsized) position accordingly. I had also trimmed at the vaccine news, as I was concerned the sentiment shift would negate any Q3 earnings upside - simply, who would put fresh $ in Zoom with an imminent vaccine, unrelenting vaccine news and uncertainty over its post pandemic growth.

What I’m looking at now, is what are the market expectations for Zoom’s growth in 2021 and how can Zoom beat them. I’d summarised these thoughts on twitter last week (https://twitter.com/TommyT017/status/1344456659876380673), which I’ll copy here (for anyone not on twitter) and add some additional thoughts, including on Zoom’s total addressable market:

Zoom 2021
For anyone long Zoom, thinking about adding, or writing it off. Today Zoom is down 40% from its ATH from only a couple months ago. With some analysts projecting only 35% growth next year, I think Zoom has potential to surprise to the upside in 2021. Here’s some reasons why:

Run rate

Zoom will hit ~$2.6bn revenue in FY21 (this year), up +325% YoY. Their likely Q4 exit rate will be >$850m (+37% on their entire FY20 revenue). Zoom’s Q4 exit rate annualised delivers +30% growth next year, with softer YoY comps till mid Q2 21. This is Zoom baseline growth going into 2021.

In other words, Zoom will ‘grow’ revenue +30% YoY in 2021 without any sequential growth. So how does Zoom grow on top of the baseline? Zoom’s revenue can be broken into three customer segments: Enterprise, <10 employees and >10 employees:

Customer segments

1.Enterprise customers made up 18% of revenue in Q3 FY21. Only 12% penetration into the Global 2k and ongoing success winning customers from Cisco (Zoomtopia -https://discussion.fool.com/zoomtopia-king-of-the-castle-3464170…). End-to-end encryption and Gartner accreditation in Q3 potential tailwinds for customers holding off due to security concerns.

  1. Customers <10 employees, 38% of revenue in Q3 Mix shift from <20% of revenue in Q4 FY20. Zoom is pivoting from B2B to B2C opportunity with this shift. Most vulnerable to churn post-Covid. Zoom is focusing on conversion from monthly to annual contracts to create stickiness.

  2. Customers >10 employees, 44% of revenue 433,700 customers up from 81,900 in Q420, +430% in just 3 quarters! Revenue contribution of segment ‘only’ +264% in same period. Monetisation opportunity, inc. 125,000 free schools (2nd fastest growing vertical behind Govnt)

Zoom Phone

Zoom Phone TAM of $23bn by 2024. 22% of customers new to Zoom, 500k+ seats sold TTM with 8x traffic increase. FASTEST growing product. Cross sell & new customer opportunity. ‘We absolutely expect Phone to be a key driver for next year’ (CFO Q3 call)

Slow sales cycle and migration (ie. delayed contribution into 2021) Pent up demand for when offices reopen (& for Zoom Rooms). Customer savings using Phone due to cost of alternate vendors & maintenance of on premise platforms & licenses - driving economies of scale.


Zoom’s go to market strategy of ‘land and expand’ includes prioritising customer happiness & offering negotiable licensing, while free hosts are an important part of the ecosystem. This may engender customer loyalty, reduce churn and provide LT ‘pipeline’:

Continued monetisation of 125,000 free schools (Education is Zoom’s 2nd fastest vertical. N.B. that CFO had noted in Q3 call that paying is ‘certainly an elevated percentage of our total usage’).

Active host licenses. Zoom offers some customers flexibility of license commitment, with a true-up of these mid-21. Pricing, new features, add on plans, prep for post-Covid with upselling of Webinar, Rooms & Smart Gallery (eg Rakuten in Q3).

CFO on active host licenses (Q3 call): “After a year, we would look at where their high watermark was of usage for those hosts and that would be their true-up then for the next year.”

For more detail of active host licenses: https://onlinezoomappdownload.com/discounted-license-for-com…

Added thought: Zoom has had a net dollar retention rate of >130% for 10 consecutive quarters since IPO. In other words, Zoom’s existing customers spend +30% more year after year. This is best of breed, and demonstrates the efficacy of their ‘land and expand’ and customer loyalty. We are all impressed with Crowdstrike’s cross-selling of modules; their DBNER is >120% by comparison.

Zoom has demonstrated effectiveness monetising & scaling its customers. What is also has now, is half a million more businesses, with a number on discounted or free licenses.

International expansion

Q3 international revenue +629% YoY (!!)

31% of total revenue (vs 20% of revenue in Q320).

Strong growth across all segments.

Phone - 87% of contribution from US. Aggressive intl. expansion (from 18 to 43 countries in 5 months)

Added thought: Zoom expects international revenue to make up ~50% of total revenue in the long term.

Growth through channel partners, eg Lumen Technologies.

Integration of services through large channel partnerships as they shift to cloud will open new avenues for growth and win new Enterprise customers. ‘Certainly…it will be a driver for growth next year’ (CFO Q3 call)

Level of churn

Contd. macro pressure on companies to cut costs and realised Travel & Subsistence savings during the pandemic means that business travel is unlikely to revert to prior levels post Covid, combined with a lasting hybrid remote working environment

Added thought: this is the biggest area of uncertainty for Zoom. Every earnings call since Q1 they have modeled a higher rate of churn that was realised ‘due to uncertainty of the pandemic’. Note that Zoom has $1.6bn RPO (under contract) as of Q3. Keep an eye on how this develops as they try and tie more customers to annual contracts.

Beyond 2021?

OnZoom will be a focal point for R&D expenditure next year as Zoom looks to capitalise on its new consumer opportunity

Zoom Apps: building an overall communications platform

Zoom can grow to the vision of its management. Yuan sees the opportunity in its platform (Zoomtopia)

Added thought: while <10 employee segment (38% of revenue) might be the most vulnerable segment to churn post pandemic, it’s perhaps where the biggest opportunity for Zoom lies long term - its platform & the consumer.


Zoom’s forward P/S ratio of Q421 ($850m) annualised is 29x, vs 23x in Q420. Zoom has a much greater opportunity & positioning today than it did 12 months ago, with strong secular tailwinds & a global paradigm shift.

Zoom’s value of Free Cashflow:
"Stat that blew my mind:
Zoom did more in operating cash flow ($411M in Q3, $1.65B annualized) than Salesforce ($350M in Q3, $1.4B annualized) did in the most recent quarter
Amazing considering Zoom’s scale is ~15% of CRM’s – $3.2B ARR versus $21.8B"
From <https://twitter.com/chriszeoli/status/1334584055300411395>…

Product-market fit

369% YoY revenue growth means something - product market fit. Can management which disrupted the market in the first place keep on executing above expectations?

With the sentiment shift Zoom will continue to be perceived as just a ‘Covid stock’ for the time being. 2021 could be a pivotal year that this perception is either confirmed or broken.

What next for Zoom?

To paraphrase Saul, ‘what does a company that has just conquered the world do next?’

This is a good question, and it has got me thinking some more about what Zoom’s total addressable market really is and how much room there is left to grow. (Please note I am taking the studies I have found at face value, and apply your own due diligence as to their veracity and feel free to challenge).

Last year Yuan had identified Zoom’s TAM as ~$43bn. The $2.6bn revenue in FY21 represents 5% penetration into this stated market. But surely everybody now has Zoom? And how has the market opportunity changed since the pandemic?

According to this study Zoom’s share of the global video conferencing market is 33%, a market expected to grow at 17% CAGR over the next 7 years.

However, Zoom’s total addressable market is not simply video conferencing, but unified communications (UCaaS). For a Zoom blog on UCaaS: https://blog.zoom.us/unified-communications-as-a-service-uca…

The UCaaS market is today estimated at $46bn and is to triple to $140bn by 2025, at a CAGR of 25% (and increasing all the time): https://www.nextiva.com/blog/ucaas-market.html

So is Zoom making any inroads into the total UCaaS market, including the transition from on-prem to Cloud Pbx (Phone) and Cloud contact centres? According to this study, Zoom has come from nowhere to grab 2% of the market share since the pandemic, with a foothold of 10% of Enterprise customers: https://www.srgresearch.com/articles/microsoft-and-zoom-help…. You might wonder (I did) how RingCentral represents 25% market share with half Zoom’s revenue. RingCentral is a market leader in Pbx (telephony) and there is a minimum UCaaS seat requirement of 600,000 (which Zoom hit in Q2) (https://www.nojitter.com/ucaas/putting-microsoft-cisco-zoom-…)

But how much can Zoom Phone move the dial in the short term? We have some tidbits of information, and we could probably come up with a contribution based on some assumptions. But what I come back to is the language of the CFO in the Q3 call: “absolutely it will be a key growth driver next year.”

Is that simply because Zoom doesn’t see much growth elsewhere? Phone is Zoom’s fastest growing product, bringing in new business with 22% of customers - the 78% of Phone customers who aren’t new representing cross-selling opportunity.

We haven’t talked about Zoom’s consumer opportunity, but at this point OnZoom and Zoom Apps are in their infancy, and will not contribute to 2021 revenue (meaningfully).

All in all, it seems the market is still there. How quickly Zoom gets there is another question. The challenge Zoom has is growing its total revenue at a high enough rate as we might expect continued acceleration of Enterprise customers but from only 18% of revenue, while the 38% of revenue <10 employee segment will likely have elevated rates of churn. For me it comes down to the >10 employee segment and potential monetisation of this to swing the difference.

While this post is intended to show how Zoom might surprise in 2021 and a view of the market opportunity, this may not play out or it could be an opportunity cost in the short term, and I had reduced my own exposure to the downside. I now have an 8% position and am looking to Q4 for more clues.


I am looking for >$850-900m revenue, including continued acceleration of Enterprise customers & mix shift back, Phone insight, international expansion, increased scale (R&D + S&M spend), and positive guidance/management comments for 2021.

I might be wrong about any of this. I’ve only been following any of these companies for about 6 months. I’m just trying to express my thoughts from reading earnings reports/calls & my decisions as transparently as possible, in case anybody gets any value from them.


Thanks a lot for your post. I agree with your post almost 100%. I’ve always been thinking about writing a post to clarify my thoughts about Zoom, but haven’t gotten time to do so. And today, I see your wonderful summary!

Unlike a lot of great minds on this board, I am still heavily invested in Zoom (my largest position now). I have to admit that it is hard to hold an opinion different from Saul, especially when Zoom’s stock price has been down for a while. However, we know a student is truly learning something when he holds a different opinion with his advisor. I guess if I am eventually proven to be wrong by the market, I am perfectly OK treating those losses as tuition, after the huge gain in 2020.

In addition to what you wrote, I would like to add my two cents:

  1. I was concerned the sentiment shift would negate any Q3 earnings upside - simply, who would put fresh $ in Zoom with an imminent vaccine, unrelenting vaccine news and uncertainty over its post-pandemic growth.
    I can see many investors putting fresh $ into Zoom now. There are several distinct investing philosophies in the world, even among the greatest growth investors we learn from. Beth pays more attention in macro-trends then individual company’s short-term performance. Bert considers EV/S almost as important as the growth rate. (I would guess both of them are happy investing in Zoom now). And we have Saul here on this board who does not like Zoom too much. (You may ask: does Beth’s or Bert’s method have any advantage over Saul? Well I can think of at least one: their methodologies generate an acceptable return, and to create/maintain their methodologies does not require a person to have a great mind like Saul’s.)

  2. Zoom Pricing Power and Zoom Phone
    As Beth said in her interview (https://www.youtube.com/watch?v=YBeMwH4RmLU&t=14s ), Zoom’s video conference has a pricing power not seen by many firms expect Amazon Prime or Netflix. Zoom may easily double its price without losing too many customers, just like Amazon or Netflix.

If you compare the price of Zoom Phone and Zoom’s competitor RingCentral:
Zoom charges $120/year while RingCentral changes $20/month. With Zoom’s infrastructure for video conferencing, adding the limited voice load has almost no impact on its system at all. Zoom thus has the ability to provide a superior phone product with lower pricing! I won’t be able to understand why companies choose NOT to switch to Zoom Phone after they return to their office in the next several months, figuring out that they just face the renewal of their annual contract with RingCentral.

  1. International Expansion
    To be honest, Zoom’s international expansion speed disappointed me in its Q3 report. Before the Q3 earning call, I used a simple linear model assuming the Q3 new international revenue same as the additional international revenue in Q2. If that turned out to be true, Zoom would have $382 million international revenue in Q3 and total revenue of at least $835 million.

Apparently, I was wrong. The Q2 international growth was highly COVID driven, and did not repeat itself in Q3. It is unrealistic to assume Zoom to have another COVID tailwind. After all, the 87% annualized growth in Q3 looks like nothing compared with the 1500+% in Q2, right? Europe is facing another lockdown now, unfortunately. I’ll wait to see the Q4 result whether the tailwind let Zoom penetrate more in the international market there.

  1. OnZoom and B2C
    I wrote a post about OnZoom on Dec 11th arguing that Zoom’s free customers allow the company to become a B2C company with much larger TAM ahead. It’s possible that OnZoom will have a chance to become the largest distributor of services in the near future, like Amazon be the distributor of goods. Without the perspective of OnZoom, I would have exited the position with everyone else. The post is at:

I am actually not very comfortable with the speed OnZoom is moving forward now. I do not expect it to create a significant amount of revenue in the calendar year 2021. — One does not need to see revenue from Facebook/Amazon/Youtube before knowing that those business models create a lot of value. However, I do like to see OnZoom executing well and establishing its market dominance position.

OnZoom has been in beta version since mid-October 2020. I searched on Google and it is said that a beta version software generally takes two months before the official release. I will continue to observe how OnZoom works out, whether an official version comes out in one or two months from now, whether there will be a lot of Ads about OnZoom as needed for a B2C company. (I am current seeing several Peloton ads every day, and I even see Facebook’s ads on Youtube!)

Overall, I’ll keep my Zoom position and give it another quarter to check for international expansion, Zoom Phone, and OnZoom. The market is currently treating Zoom as a 30% growth company, and I think that is ridiculous, given new businesses and the DBNER of 130%+.



I agree, valuation seems to suggest an expected growth rate in the 30-40% range.

Selling out based on “only” 17% sequential growth or a “massive deceleration” from 102% sequential growth doesn’t make much sense to me. If their growth had been 14%, 13%, 15%, 16%, and 17% in the past 5 quarters we would be praising the acceleration. The fact that they posted 74% and 102% sequentially shouldn’t be an argument against them, in my opinion. Maybe you think they’ve saturated the market, which is fine. I think it is more properly priced now than it was early on in the pandemic when people still thought they would just slightly beat guidance in Q2 and couldn’t possibly repeat it in Q3. At this point, their valuation has only gone up proportionally with their revenue growth, the differences are now that they have presumably filled a chunk of their potential market but also become significantly more profitable with massive amounts of free cash flow and become a huge consumer brand.

Given the frothiness in the parts of the market, I want to own quality growth companies that are showing operating leverage. If Zoom can post 12% sequential growth or so, with their profitability, I’d be very happy. Not worth holding as a massively oversized position, but still a solid holding.


great discussion…

my 2 cents…
ZM has become and will remain for a while… a “show me” story… a lot of success on this board has come from switching the boat very very fast… however, likes of SHOP, TWLO, MDB and TTD have shown that some of these names re-accelerate in stock price appreciation and prove that just because a company goes down in popularity on this board does not mean it will not roar back… (ofcourse this is a bit cherry picking… for every SHOP and TWLO rebound, there is NTNX and others that did not come back to glory… at-least yet…)

Back to Zoom, I believe phone is a big opportunity, I have shared my opinion here that phone is bigger than video conf… However, it is harder to switch phones and therefore from a such a large base of revenue, phone may not be able to get growth rate where Zoom bulls get back on board…

also I think the UCAAS market is big but it is unlikely to grow at 25% CAGR that some report refers above…

OnZoom is a wild card and I would not invest based on its potential until we can see tangible metrics…

All in all, I think ZM for long term has good potential, for next quarter or two, stock price likely to trade water…

For me, I have reduced after last earnings from ~10% position down to 1% position… will look for clues to upside before buying back in.


However, it is harder to switch phones

nilvest - why do you think it is hard to switch phones? Is it timing of the existing phone contract or a HW issue or what?

Our company of 1500 recently switched to Zoom phone and it was seamless. IT guys loved the Zoom support and product flexibility. We were able to reuse existing phone HW and it allows us to drop our prior service and consolidate video and voice on a single provider. The company offered some training classes - but how much training do you need on using a phone. The transition was seamless.

I am not sure what percent of existing Zoom users will adopt Zoom phone but it seems like some low hanging fruit to be had to continue strong growth. I have to believe all corporate accounts are considering it and many will adopt as their existing phone contracts expire or as IT teams plan and complete projects in the new year to integrate and deploy it.

Last quarter CC they answered a lot of questions about Zoom phone and all answers were very bullish. They said they were already supported in 44 markets and their CFO gave examples of Peloton and Rakuten already switching to Zoom phone and said:

And then in terms of Zoom Phone, what’s great about this, we have seen consistent performance across all segments of the business all the way from small business up to enterprise. In fact, as we continue to see strong performance in Zoom Phone, we once again had our highest deal to date in Q3. So very excited about continuing to see progress there.

There may be some unexpected Zoom phone upside discussed on next earnings and they may start giving actual adoption numbers.

I no longer hold Zoom but am tempted to jump in again at these levels given the growth outlook.


thanks clyde… its a great anecdote…

my point was, historically it has been challenging to switch phone as the services have been connected with HW… but you bring up great point with proof that Zoom is able to get service change seamlessly… at-least for small / mid size company of 150 employees…

thinking again… I feel it really is about inertia / bandwidth / priority related to IT… which means, if Zoom offers strong saving / benefits, their phone service uptick may surprise us!