Smorg, do you mean that all those free users who will never pay for their subscriptions, signed up for $250 million dollars worth?
Thanks for the ribbing, but obviously there have been both free user sign-ups and pay by the month user sign-ups, and annual plan sign-ups.
If we take that $12.50/month, or $150/year, and assume Walravens’ $250M/year add during the quarter is correct, that comes to 1.67M new paying customer sign-ups during Q1. On top of the previous 1M monthly paying customers, that’s 2.7M monthly paying customers.
So first, 1M to 2.7M in a quarter is humongous growth! Zoom doesn’t disclose the number of paying users, so we have to reverse engineer the numbers. This CNBC article in Feb (https://www.cnbc.com/2020/02/26/zoom-has-added-more-users-so… ) cites Bernstein’s reverse engineering to these numbers:
Zoom had 12.92 million monthly active users, up 21% since the end of 2019, Chrane and Isaacs wrote, citing data from privately held Apptopia. “Zoom has added 3.5x more MAUs YTD [year to date] than the same period of 2019 (2.22 vs. 0.64 million), so even with half the normal paid user conversion rate, this would still yield 74% y/y growth in paid user adds YTD,” they wrote.
If we look at the 300M participant peak compared to a now 18M (? - I don’t know this number) paid users, that gives us a 15:1 ratio of participants to paid users. What’s the average number of meetings per day for paid and for free users? Maybe someone smarter than me can figure out the ratio of daily meeting participants to paid users to help us map out the future.
Those people are not going to cancel to save $12. Not going to happen, when they can now talk with a half dozen, or a dozen, of their friends all over the country and the world once a month for a couple of hours if they want to. Or a doctor’s office, or a yoga studio, or whatever. One client a month well more than pays for their subscription.
Well, Zoom management thinks otherwise:
Historically, monthly subscribers have a higher churn rate compared to annual or multi-year subscribers. In addition, as governments start to ease shelter-in-place restrictions, we may see a moderation of demand for our services. Given our assumptions on higher churn rate as well as economic uncertainty, we are projecting Q3 and Q4 revenue to be relatively consistent with Q2.
And that last part is probably what prevented the stock price from taking off. Mr. Market is near-term future-oriented, and Zoom management is saying that revenue the second half of 2021 will be flat compared to the first half. Also, note that as a percentage of revenue, expenses declined, but that trend is going to go the other way, as they said in the call:
In FY '21, we plan to continue investing in R&D to drive innovation and security functionality, including leveraging the expertise and resources from top security firms. Also, we recently announced the addition of two Engineering Centers of Excellence where we expect to add up to 500 software engineers in the next few years. The new R&D centers in Greater Phoenix, Arizona and Pittsburgh, Pennsylvania will both be located near top engineering universities.
Like I said, they could be sandbagging, or maybe they really just don’t know, or some combination of the two. You have no argument from me that Zoom is the go-to video conferencing product for consumers and small businesses. I still think they have a battle in front of them against Cisco and Microsoft, but luckily for Zoom those companies seem to rely more on package deals than having a best-of-breed product. But, of course, we all remember that Beta was better than VHS, in terms of product quality.
One last note on the latest end to end encryption kerfuffle. I think Zoom took the wrong approach for explaining to whom they were going to roll it out. Instead of talking about big brother and government invading privacy, they should have simply said that e2e encryption is an advanced feature for which we need to charge, especially since it’s costing us so much to develop. No-one else gives away e2e encryption video conferencing.