Lockdown luvvie Zoom has reported a bumper set of Q3 financials – although a rise in the number of free users dampened gross profit margins.
Revenues for the videoconferencing service hit $777.2m in the quarter ended 31 October, up 367 per cent year-on-year. That’s not a typo, and mirrors the strong trading in H1, where revenues grew 370 per cent to $991.6m. Profits proved similarly sturdy in Q3, with Zoom recording net income of $198.4m, up from $2.2m a year ago.
This was due to heightened demand from small-to-medium businesses, as well as larger “whale” clients. The number of customers with more than 10 employees hit 433,700 – up 485 per cent compared to the same (pre-pandemic) period last year.
Meanwhile, the number of customers spending more than $100,000 in a 12-month period hit 1,289, accounting for 18 per cent of revenues. This is a 136 per cent increase compared to the last quarter.
Zoom is a net beneficiary of a public health crisis that has upended ordinary life. Business travel, even domestically, is a non-starter. Offices have been shuttered, forcing people to work from home, and somewhat paradoxically for a business tool, Zoom has enjoyed an influx of ordinary free users, desperate to regain some sense of normality.
While these freeloaders do nothing for the firm’s bottom line (gross margin declined in Q3 to 66.7 per cent from the pre-pandemic level of 80 per cent, which company CFO Kelly Steckelberg partially attributed to the cost of supporting non-paying users), they have nonetheless collectively pushed Zoom’s tool into the mainstream. Like “Google” and “Hoover”, Zoom has joined a very small group of companies that have seen their brand names become verbs. “I’ll Zoom you.”
But can it last? In a year defined by uncertainty and monotony, the public now has reason for hope, thanks to the development of three viable vaccines, which are expected to start rolling out to the public later this month. There is now a reasonable prospect of a return to normality.
What does this mean for Zoom’s bottom line? Steckelberg, speaking in an earnings call, did not predict an impending plunge off a cliff.
“The remote working trends that started pre-pandemic have certainly accelerated during this period of time,” she said. “And while we all hope for a vaccine as soon as possible, I think that remote work trends are here to stay.”
She is probably right. Remote working allows businesses to downsize their expensive office rents. Employees, on the other hand, benefit from a lack of commute, and the ability to roll out of bed and start working while wearing naught but a dressing gown.
A bunch of tech firms including Fujitsu and Dell are planning to operate a workforce that splits its time between home and office spaces once the pandemic is over, and many end-user businesses are too.
Steckelberg also pointed to the growth of Zoom Phone – a tool released in March 2019, just before the firm’s IPO, which allows customers to quickly set up calls without video. Slightly contradicting herself, she acknowledged the lack of a monetisation strategy, adding that it wouldn’t contribute much to revenues in the coming year.
“We’re really focusing on building out the platform itself,” she said. ®