Zoom Launches Hardware as a Service

Investment Analysis Clubs Saul’s Investing Discussions
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Hi guys, I came across this press release from zoom launching a suscription service for hardware needed in zoom phone and zoom rooms: https://investors.zoom.us/news-releases/news-release-details…

I am myself a tech guy and i understand the hassle that sometimes choosing hardware options can be. It sounds like Zoom is trying the resolve this and to remove friction for zoom phone and rooms. Something that i believe will help the recurring revenue after COVID restrictions begin to ease.

These service presents a few options for ip/video(?) phone hardware as well as a “get in touch with a specialist” form. https://zoom.us/docs/en-us/zoomphone/hardware-as-a-service.h…

It sounds promising and something that would remove a lot of doubts and fears for customers, so that’s good news.

But i’m trying to understand what this could mean for the business and i’m hoping you can chip in on this analysis. Bear with me, since i’m still learning the ropes here in terms for understanding the financials of these type of companies.

In their Q4 2020 conf. call Eric Yuan mentioned the 1 year milestone since the launch of zoom phone and shared a couple of metrics:

  • 2900 customers signing deals for zoom phone (not sure if he meands for the Q or TTM)
  • 230 million Zoom Phone minutes

Then in their latest earnings call they mentioned that one of their clients “In Q1, they deployed a Zoom Phone, which is our largest phone deal. Around 18,000 phone licenses”

When discussing other Q milestones in terms of cliente they also mention " In Q1, Arm chose to deploy approximately 8,000 Zoom Meeting licenses, 800 Zoom Rooms and 9,000 Zoom Phones to deliver a one-touch experience to their employees globally."

Even though those metrics (phone licenses vs. customers signing deals for zoom phone) aren’t comparable, the fact that this is a highlight in the call and that one of the mentioned clients signed more phone licenses that meeting licenses says something.

Regarding the Zoom phone minutes, their Q1 2021 mentions “+two trillion annualized meeting minutes run rate”. For the sake fo comparison (and considering that i’m comparing different Qs) the 230M minutes attributed to zoom phone seems insignificant, but maybe we need to wait for the other shoe to drop.

It seems to me that we can’t calculate a trend with these numbers yet but maybe someone can add on top of this. Up to this point i thought that zoom phone and rooms was just a “legacy” option to provide for offices and enterprise clients used to tele-conferencing rooms and such, but this announcement made me rethink this.

My conclusion: this service seems an excelent strategy to remove barriers and “land” zoom phone deals, which in turn will make it more difficult for customer to switch providers in the future (aka: moat). Although i haven’t found enought information to assert how big the opportunity is (maybe it’s bigger than video even), it seems that the company is betting heavy on zoom phone and rooms and this could be a big driver.

Martin

Long ZM

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This news & service now news feels favorable to ZM.
Just added to my small position by doing an extended hours trade through fidelity for exact same price as the stock close price. Did not want to wait for tomorrow to add.
Never thought extended trading is so easy.
I guess necessity is the mother of invention.

Thanks,
Praveen

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I got the same email, and I was thinking that this would really help land big customers because they are supplying the hardware needed for Zoom Rooms (Video Conferencing Rooms) on a subscription basis. Here’s part of what the public blog said:

Zoom Launches Hardware as a Service

Video-enabled conference rooms and cloud phone products are among the most powerful business tools available, especially with businesses needing exceptional resilience and agility more than ever. Conference rooms with video conferencing technology provide professional, high-quality face-to-face communication from the comfort of the office, while cloud phone products allow employees to work from anywhere they have a connection, reducing friction in internal and external communication and driving employee productivity. However, the prohibitive cost of top-tier hardware solutions and the significant investment required to scale these hardware solutions often prevents companies from providing employees with effective hardware solutions.

Zoom’s new Hardware as a Service (HaaS) program, initially available to only our US customers, provides access to Zoom Phone and Zoom Rooms hardware solutions with a budget-friendly subscription service, giving organizations the ability to outfit their employees with leading hardware solutions and affordably scale these solutions at a fixed monthly price. Here are some of the benefits of Zoom’s HaaS program:

Low upfront costs and predictable budgets
Many companies can’t afford to equip their employees with effective hardware solutions due to large upfront costs and a significant impact on their budget. With Zoom HaaS, organizations can equip themselves with hardware solutions from leading vendors like DTEN, Neat, Poly, and Yealink without the large initial investment, freeing up their budget for important projects and making hardware solutions more accessible for businesses of all sizes.

Scalability
Purchasing hardware outright can be a great solution, but it doesn’t give organizations the flexibility they need to scale up or down. Scaling up with purchased hardware requires a significant investment while purchased devices often must be used for long periods of time to see a material return on the initial investment. Zoom HaaS allows businesses to more easily scale up or down with high-quality devices designed for Zoom Phone and Zoom Rooms, allowing them to maximize cost efficiency and manage their hardware solutions to fit their needs and budget.

Fully supported by Zoom
All Zoom HaaS solutions are fully supported through Zoom, allowing customers to maintain a high level of availability. IT professionals also have the option to add professional and managed services to their subscription, providing organizations with more hassle-free installation services and enhanced end-to-end management from Zoom’s professional services teams.

https://blog.zoom.us/zoom-launches-hardware-as-a-service-pro…

Saul here again: this sounds to me like a very smart move and a big deal for Zoom!

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As Zoom is growing in the enterprise segment, Zoom needs to cover not only the employees computers but also these organisations’ meeting rooms and displace the incumbent solutions. Zoom’s desire to make life easier for all their customers and innovate with HaaS is a very smart move and firmly cements them as an enterprise provider with a complete and compelling toolbox.

My two pence is that HaaS in itself is not highly profitable (80-90% gross margin). I would guess that this will be low margin in order to ensure they can sell their high margin seats.

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My question is if the outside vendors are bearing the upfront cost of the hardware? It sounds like this might be the case but if Zoom is going to have significant upfront expense related to the hardware it is no longer a business that isn’t capital intensive.

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