Zoom Earnings — Crushing It, But There Are Big Hurdles Ahead

Zoom Video Communications (NASDAQ: ZM) reported first-quarter results for fiscal 2020 on Thursday that delighted investors, who sent shares zooming 18.4 percent higher on Friday and then came back for a buying encore on Monday, driving shares up another 8.5 percent.

In its first quarterly report since going public in April, the Silicon Valley-based videoconferencing specialist’s revenue soared 103 percent to $122 million. GAAP earnings per share came in at breakeven, compared with a loss of $0.02 per share in the year-ago period, and EPS adjusted for one-time items was $0.03, up from $0.00. Read the full story at Yahoo Finance.

Zoom Earnings — Crushing It, But There Are Big Hurdles Ahead

Analyst Take:  Zoom absolutely crushed it in their first quarter since going public and the street rewarded them with over 25 percent aggregate bump in the two trading days that followed. With revenue growth of 103 percent taking them to over 122 million for the quarter, the darlings of ad-hoc video meetings not only made their revenue trackers happy, but they did something that few unicorns do within the first quarter of going public—they broke even. That is right, no loss on the shares, meaning the company is mighty close to making money.

With the addition of their new Zoom Phone product, Zoom is also addressing the unified communication space and they are now claiming that they have a total addressable market (TAM) of nearly $43 Billion. Given the fact that the company is only tracking to about $490 million gross revenue for the year, that gives them huge growth potential if they capture even 10 percent of the available market.

The good for Zoom is that they have built their user base and now have loyal businesses big and small that like their product. As a heavy user of video, I can tell you if you have two people on laptops doing video, the product works well. The challenge is that for the company to continue growing, they will need to win more enterprise business. This is the room side of the business and the company will need to become better at interoperability given the massive global deployments of Cisco (especially for hardware) and Microsoft, for messaging, video, and web collaboration. And of course Citrix, Google, Facebook, and a plethora of other fringe players in the video space. As of right now, their interoperability just isn’t that good, and it doesn’t win against Cisco. And this will limit their growth in the enterprise.

Additionally, the company will have to do its share to win the office of the CIO. Much like Slack in pervasive chat, the company has won video customers at the scrum level. Swipe your credit card and get started. If you have a team of 10 it is easy. If you never want to use a room video system, also easy. However, when you have 20 offices and 5,000 locations and meeting spaces, it is a whole different story.

In short, I’m neutral on Zoom. Their growth should be commended, as for the simplicity that they have brought to point-to-point desktop and mobile video. But I think their next hurdle is a big one and it will lead to slowed growth and a requirement to build more 3rd party integrations, improve their hardware stack and look beyond video for their ecosystem. And yes, I know they have a phone now, but I’m still not sure who is going to use it…

Futurum Research provides industry research and analysis. These columns are for educational purposes only and should not be considered in any way investment advice. 

Related reads:

Cisco Live — Collaboration Goes Cognitive and Interoperable

How Microsoft Teams is Evolving into Microsoft’s UC Platform

 

 

Daniel Newman

Daniel Newman is the Principal Analyst of Futurum Research and the CEO of Broadsuite Media Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise. From Big Data to IoT to Cloud Computing, Newman makes the connections between business, people and tech that are required for companies to benefit most from their technology projects, which leads to his ideas regularly being cited by CNBC, Barrons, Business Insider and hundreds of other sites across the world. A 7x Best-Selling Author including his most recent “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor. MBA and Graduate Adjunct Professor, Daniel Newman is a Chicago Native and his speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
Daniel Newman