Zoom suspends new free users in China

This is part of a news story I received from Schwab.

Zoom suspends new free user registrations in China

Video conferencing provider Zoom Video Communications Inc said on Tuesday it was limiting new user registrations in mainland China to enterprise customers only.

Free users in mainland China can continue to join meetings hosted by registered customers, whereas new user registrations are available only for enterprise customers who sign up through authorized sales representatives, according to a statement from the company.
The coronavirus-fuelled lockdowns of millions of people globally have driven huge growth in use of platforms such as Zoom, as families and organizations use its software to connect.

Nikkei first reported of the development saying the restriction on Chinese individual accounts on the Zoom app was due to "regulatory requirements……

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this is just another way of controlling by that government. It just tells me Zoom is not controlled by Chinese government as it is a US entity. They will not restrict WeChat use as that is fully controlled and censored.

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Of course Zoom is not controlled by Chinese government - otherwise they would have never been approved for US Gov use (Zoom for Gov version).

Both last actions of the company - hiring US based developers and restricting (free) Chinese users show clear intention to distance from “Chinese” stigma. Very correct steps for Zoom indeed!

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Our US government has FedRamp requirements that differ from commercial requirements. And the FedRamp certified Zoom cloud service would be entirely discrete from any commercial service. So do not assume US government usage means the commercial side is similarly secured from the Chinese. The Chinese government actors are a bunch of tricky guys.

Lastly remember Zoom CEO Eric Yuan is the son of mining engineers. He was born and raised in Tai’an, Shandong Province, China. As a foreign born, we can be rather certain that he does not have access to the FedRamp Zoom service that is operated by others in his company.

-zane

restricting (free) Chinese users show clear intention to distance from “Chinese” stigma.

Would suspending new free users in China not suggest that their costs to support free users has quickly grown beyond what they ever anticipated and this was deemed the best way to stop the bleeding?

It is probably the best decision, business-wise. The press I’ve seen suggests this is Zoom reducing exposure to China somehow, although that doesn’t really make sense to me. It’s not like they don’t already have millions of Chinese users. It just sounds to me they are eliminating costs that they don’t expect will lead to significant future revenue.

-mekong

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Mekong, a very valid point. Perhaps they try to kill 2 birds with 1 stone - managing their “China” exposure (reputational issue) and managing their costs structure which definitely will surge due to many millions of free users. I guess we need to wait earnings report in order to see if our long thesis holds or bears were correct with all the arguments about not paying users (rising costs), no moat, security flaws, reputational “China” risks etc. Unless someone on this board can already infer rise in costs and revenues and relationship between both.

Another point - here in Europe there is a small buzz for Zoom competitor recently listed in Norway - Pepix. Some people I know who kind of missed buying ZM cheaper recently bought into Pepix. The stock was listed just few days ago. Current market cap is around USD 1b. They kind of focusing on security and market themselves as the provider used by US military and German Government.

Here are several links to basic information about the company and IPO

https://www.reuters.com/article/us-pexip-ipo/video-conferenc…

https://www.redherring.com/exit-report/pexip-roadshows-for-i…

Basic information:

Company founded - 2011
Employees in 18 countries - 225
Partners in 75 countries - 300
Customers - 3600
Countries with users - 190
Net customer retention rate 113%

Here is company’s presentation https://mb.cision.com/Main/19292/3112135/1247834.pdf

Here is annual report https://mb.cision.com/Main/19292/3100865/1239250.pdf

They claim to have best in class Saas Metrics

ARR CAGR 2013A – 2019A 79%

customers per YE2019 3,400+

net revenue retention 2019A 99%

EBITDA margin 2019A 21%

gross–margin 2019A 95%

LTV:CAC ratio 2019A 5.8x

What I’m personally positively surprised is that their Gross Margin is 95% and EBITDA 21%. This perhaps confirms that this business in general is very profitable? This could rebuke one of the Zoom short arguments that ZM’s high GM is because of Chinese developers and it would go down with development being relocated to the West. If Pexip has developers only in Western countries and GM 95%, ZM should be able to maintain high GM with US/European developers.

Anyway, Pexip is probably worth deeper dive in my eyes.

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Some people I know who kind of missed buying ZM cheaper recently bought into Pepix.

You haven’t missed a game that’s in the early innings. Not a good reason to play the minor leagues.

On Monday ZM dropped 5.8% to $164.69 and people were asking if it could drop to $150. So Tuesday it bounced back 5.5% to $173.68. You can’t pretend to time such a crazy market. Buy the leader and sit tight is the best recommendation I can make. This game is not going to be over next week or next year. There is a paradigm shift happening right in front of our eyes and it’s not going to disappear overnight.

Denny Schlesinger

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Hi Denny,

I’m long ZM, for the record. Thanks to this wonderful board for all the discussions!

I was thinking of adding value to the board and posted about ZM competitor. I think that it’s good to analyze competition to our companies, no? For example, like Muji did a deep dive into NET and compared to FSLY. I don’t have position in Pepix, just some of my friends recently bought in. Planning to delve deeper into this company.

Agree on investing into winners! But who said that Zoom will be sole winner here? :slight_smile: Please see NET and FSLY pair.

Best,
V

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I think that it’s good to analyze competition to our companies, no?

Absolutely! Yes! I was responding to the trade related part of your post…

You haven’t missed a game that’s in the early innings. Not a good reason to play the minor leagues.

But who said that Zoom will be sole winner here?

I did, for one! :wink:

Not “sole winner” but “big winner.”

Denny Schlesinger

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As a foreign born, we can be rather certain that he does not have access to the FedRamp Zoom service that is operated by others in his company.

He is a US Citizen!

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