Zoom Warns investors

https://mspoweruser.com/zoom-warns-investors-they-may-become…

We expect our cost of revenue to increase for the foreseeable future, both in absolute dollars and as a percentage of total revenue, as we expand our data centre capacity and third party cloud hosting due to increased usage stemming from the recent outbreak of the COVID-19 virus,” Zoom writes in the filing.

I think this should be expected given the number of free accounts signing up, longer term, likely to depend how many of those convert to Paying customers.

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The source referenced above and only source I could find is a MicroSoft centric blog that discusses all things MS…MSPowerUser.com. I am waiting for a second source confirmation on this information.

Zoom’s CFO was on MSNBC on Friday and was bragging about their data center infrastructure and capacity. I recall her saying that Zoom has 19 data centers worldwide and each data center was configured in a manner in which the highest conceivable demand on the data center was designed to be 50% of the data center’s capacity.

I’m not saying this is not true; but I am not taking it at face value until I have confirmation from a reliable source. There is no press release on the Investor Relations website as of this writing.

Harley

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It’s basically an interpretation of the recently released 10K (https://investors.zoom.us/static-files/09a01665-5f33-4007-8e…). I personally don’t think it’s a big deal, it’s just cautioning investors of certain things that potentially can happen to their financials due to the COVID-19 outbreak.

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I confirmed for myself…the term “Covid-19” appears ten (10) times in the 10k. It does appear as noted in the original post of this thread at the top of Page 41 under Cost of Revenue.

I stand corrected,

Harley

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Does anyone know, or did they say, from whom they buy their server and networking equipment?

I recall her saying that Zoom has 19 data centers worldwide and each data center was configured in a manner in which the highest conceivable demand on the data center was designed to be 50% of the data center’s capacity.

I saw her say that on Fox Business a couple weeks ago too. However, that 100% headroom they made for themselves is probably all gone since she said that. Every church, school and big family has signed up to use their free service.

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Zoom “warns”. Seems a little sensational, no?

They said this repeatedly on the call. Was there anybody in the world who wasn’t aware that Zoom wasn’t seeing a boom in usage? And they would have to increase capacity. While there is a lot of free usage, will they not also get a lot of new and permanent paid usage increase as well?

Back on March 4 in the call.

In terms of our results in Slide 4, Q4, we did not see any impact directly related to coronavirus and as a reminder we have definitely seen an up tick in usage. But a lot of that is on the free side. So it’s very early to tell whether or not that’s going to convert long-term into paying customers. As we mentioned, we are seeing impact and if continue to build capacity to ensure that we can support this increased usage. So we are seeing impact on our gross margins, which is why we’re guiding you towards the lower end of our range for next year.

One of many similar statements. The annual report was filed on March 20 is just the legalized formal wording of what they already told investors.

Zoom uses a network of co-located data centers similar (on a smaller scale) to ZScaler. And AWS and Azure for other critical cloud infrastructure. From S-1.

We currently serve our users from 13 co-located data centers in Australia, Brazil, Canada, China, Germany, India, Japan, the Netherlands and the United States. We also utilize Amazon Web Services and Microsoft Azure for the hosting of certain critical aspects of our business.

Darth

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When I saw the thread title I assumed it must be a warning to investors not to buy ticker ZOOM since they are ZM. Though there are apparently some maniacs out there who bought the defunct Chinese company ZOOM at $0.05 or $0.10 last year and giggling about it being over $20/share now.

I couldn’t imagine ZM have got anything going on with their business operation right now to warrant a warning.

Everybody I know is on Zoom now, but weren’t as of a week or two ago (church, school, workout, friends, family, you name it)…but, nobody I know who is on it as of recently, is willing to actually PAY for it, if they had to. I just see increased expenses and not enough to the top and/or bottom line.

I’m out with my gain tomorrow morning (FYI - I hadn’t gotten it to a very large percentage anyway, but happy with the gain in the current market situation).

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OK - a whole bunch of new free users on Zoom but also lots of new businesses on Zoom that do pay for it.

The demand is thru the roof and a good management team will find a way to monetize it. Remember Facebook - it took them a while to figure it out.

I believe in the long term this will lead to loyalty and new paying subscribers but what about the short term.

Most free services come with a catch - like you have to watch ads if you are not paying for it.

How long is it before Zoom starts selling advertising space to monetize all those free users?

It is my understanding they will also start selling hardware which will open up another revenue stream.

How else might they be monetizing free users - would be interested to hear others views.

ClydeJ - long ZM

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The source referenced above and only source I could find is a MicroSoft centric blog that discusses all things MS…MSPowerUser.com. I am waiting for a second source confirmation on this information.

You didn’t look hard enough! :innocent:

It’s right there in the latet 10-K

Cost of Revenue
Cost of revenue primarily consists of costs related to hosting our video-first communications platform and providing general operating support services to our customers. These costs are related to our co-located data centers, third-party cloud hosting, integrated third-party PSTN services, personnel-related expenses, amortization of capitalized software development, and allocated overhead. We expect our cost of revenue to increase for the foreseeable future, both in absolute dollars and as a percentage of total revenue, as we expand our data center capacity and third party cloud hosting due to increased usage stemming from the recent outbreak of the COVID-19 virus.

https://secfilings.nasdaq.com/filingFrameset.asp?FilingID=14…

To find it search the page with “We expect our cost of revenue to increase for the foreseeable future”

The important thing is how one interprets it! In America, where you can be sued at the drop of a hat, this is an important “CYA” statement to keep ambulance chasing lawyers at bay.

The free accounts are not only humanitarian and good PR but a terrific way of gaining future ZOOM champions. Success in increasing returns type business depends heavily on “path dependence.” ZOOM is buying mindshare.

Denny Schlesinger

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Denny

I guess we both didn’t look hard enough.

Had you read the thread, you would’ve seen that I self-corrected immediately after reviewing the Cost of Revenue section of the 10k.

No harm, no foul!

Harley

No harm, no foul!

Harley

No offense meant! I hope you enjoyed my emoticon :innocent:

I’m very bullish on Zoom, the fact that friends of Microsoft published that “warning” means they are bothered by Zoom. That’s good news.

Denny Schlesinger

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Denny

No offense taken. Your reference is spot on. Having reviewed the source of the news item first, I was immediately and incorrectly Skeptical. To your point, Obviously MS stands to benefit when or if ZM stubs their toe and finds themselves or their loyalists in a position to amplify the information for their own competitive advantage.

That means ZM is doing something right!

Harley

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Denny: ZM is buying mindshare.

foodles: Everybody I know is on Zoom now, but weren’t as of a week or two ago (church, school, workout, friends, family, you name it)…but, nobody I know who is on it as of recently, is willing to actually PAY for it, if they had to. …I’m out with my gain tomorrow morning

I understand both of these perspectives. I do think ZM could be like a NFLX, never cheap because it has captured the intrigue of the world, but betting on which company will be the next XYZ feels like momentum investing and makes me a little nervous. That said, it’s the one stock I follow that’s almost doubled in 2020.

My conclusion: Maybe it’s best to keep my position at a level I feel comfortable with, and enjoy the ride.

Bear

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Looking at their site, I’m not seeing anything to suggest that anything beyond the basic plan is free It looks like the freebie is still available, and the paid subscriptions are still paid. Anything over 40 minutes is not free- which is probably a large number of teachers, meetings, etc nowadays.

Has anyone seen differently?

My conclusion: Maybe it’s best to keep my position at a level I feel comfortable with, and enjoy the ride.

That goes without saying!

foodles: …but, nobody I know who is on it as of recently, is willing to actually PAY for it

I, too, love free software but when it’s mission critical I’m happy to pay. For those people you know Zoom is probably NOT mission critical. For Zoom those people are not pocket share but mind share. How much is that worth?

The cost of delivering the service is quite low and since Zoom knows who is paying and who is not, they can prioritize the traffic in favor of paying clients. Think of “free” as the cost of advertising.

Denny Schlesinger

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I believe they have removed the 40 minute restriction for teachers and even across the board during this period of time. All the teachers I know are using it, so the advertising is gaining a lot of youth as well. My daughter signed up for an account so that she can talk to her friends outside of online learning time, and she is 9 years old.

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Well it’s all a mute point as it’s up another 18% right now after just a half hour. I guess the market isn’t overly concerned about the expense of carrying the free accounts, which, as Denny rightly pointed out, you can consider as advertising costs.
Saul

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No. of Recommendations: 4
My conclusion: Maybe it’s best to keep my position at a level I feel comfortable with, and enjoy the ride.

That goes without saying!

foodles: …but, nobody I know who is on it as of recently, is willing to actually PAY for it

Clearly only a percentage of recent users of free service will sign up for the paid service.Whatever the number it will boost the already rapid growth of paid users.

Furthermore the widespread and favorable publicity represents free marketing of the most effective sort.So ZM will almost certainly benefit from a sustained level of new interest by potential buyers.

It seems obvious that this logic or something like it is driving the run up in price. The caveat is that we aren’t there yet and there is no way to suggest when we will be. So there might be an opportunity now or soon to take advantage of the exuberance to temporarily take some $ off the table.

And we must remember that there’s many a slip twixt hip flask and lip