Zoom Phone: I am actually a little disappointed. The 1 million seats of Zoom phone contribute to around $10-$15/Month (from different ZM pricing plan) * 1 million * 3 months/qtr = $30-45 million per quarter. If Zoom phone has a 100% year over year growth next year (like ZM video several years ago), it only contributes 4%-6% of revenue growth (30 to 45 vs 777 per quarter.) Will Zoom Phone be able to grow 200% or 300% per year? Given the existing sales relationship and Zoom’s reputation, it could be possible. But that will only be 8% to 18% annual growth rate contribution.
I have always been very bullish about Zoom, and thus feel disappointed that Zoom Phone only contributes to 8% to 18% of growth.
Far from being disappointed, I actually found this press release encouraging. I also think we have lots of tidbits of information about Zoom Phone which we can piece together to get a pretty complete picture. Here’s what we know about Zoom Phone, relevant to this press release:
- In mid October Zoom announced they had sold 500k+ Phone seats trailing twelve months (Zoomtopia).
- 3 months later and yesterday Zoom announced they had reached 1 million Phone seats.
- 22% of Phone customers are new to Zoom (Zoomtopia).
- Zoom is hiring for Phone exponentially, with new openings rising dramatically in December: https://twitter.com/AznWeng/status/1349011412606189573/photo…
So what is this telling us? Well Zoom has DOUBLED the number of Phone seats in the last 3 months and while it was already Zoom’s fastest growing product in Q3, it is continuing to accelerate. Perhaps this is not surprising, as we already knew that Zoom Phone was being rolled out from 8 to 44 countries.
Now we wouldn’t expect Zoom Phone to continue to double sequentially every quarter, but if we use the 500k Zoom Phone seats gained in Q4 as a benchmark we might expect Zoom to add a minimum of 500k of Phone Seats per quarter in 2021, bringing total Zoom Phone seats to >3 million by the end of next financial year (FY22) - representing +200% growth YoY.
Also consider the pace of hiring for Phone, focus on international expansion for Phone, TAM for Phone, ample pipeline of customers for Phone, slow sales cycle and migration for Phone, demand for Phone when offices reopen - and we begin to get more of a sense of why management say that ‘absolutely it will be a key growth driver for next year’.
So what does ‘key’ actually mean? Let’s say the assumption of $10-15 revenue contribution per month is correct for a Phone seat (not taking into account the incremental revenue from the 22% of new customers & for the unified plan & cross-sell opportunity):
**Q1 Q2 Q3 Q4 Total FY22**
Phone Seats 1,500,000 2,000,000 2,500,000 3,000,000
Revenue contribution ($) @$10 45,000,000 60,000,000 75,000,000 90,000,000 **270,000,000**
Revenue contribution ($) @$15 67,500,000 90,000,000 112,500,000 135,000,000 **405,000,000**
Phone contribution of $270m-405m would represent +10%-16% growth on the FY21 likely exit rate of $2.6bn. The Q4 exit rate annualised would represent $360m-$540m Phone contribution.
All in all, I don’t think anyone can realistically expect Phone alone to shift Zoom from (for example) a 50% grower to a 100% grower in 2021 (FY22), because it is a new product growing from a smaller base of revenue. However, if it were to contribute 10-15% revenue growth at 200% growth YoY, this is moving the dial and creates a substantial base going into FY23 for the market opportunity.
This along with the other monetisation opportunities, might mean Zoom exceeds lowered expectations in 2021. Again, I come back to: how much is enough…
https://discussion.fool.com/zoom-how-much-is-enough-34713078.asp…