If there’s only one winner from the coronavirus pandemic, it will have to be Zoom Video Communications, the once-obscure enterprise software maker that turned into a life essential almost overnight. In the first three months of 2020, daily use of Zoom’s video conferencing software jumped 20-fold, according to company founder and CEO Eric Yuan, as people turned to the app to work, learn and socialize during the quarantine.
Zoom’s surging popularity has translated into a stock boom for the newly IPO-ed company, boosting its share price more than 300 percent since January. It hit an all-time high of $210 on Monday, ahead of the company’s first-quarter earnings release on Tuesday afternoon.
Tuesday’s quarterly report will contain crucial information for Wall Street analysts because, unlike most companies whose first-quarter results (for the period January through March) largely reflect business performance prior to the coronavirus lockdown, Zoom’s fiscal first quarter ended on April 30, meaning its Q1 financial numbers will show the impact of at least 1.5 months of lockdown on business.
Zoom was already on a rapid growth track before the pandemic. In its latest fiscal year ended January 31, the company posted a 88 percent year-over-year jump in revenue (to $622.7 million) and a profit of $25.3 million, a rare milestone for a nine-year-old startup.
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“They were on a very strong trajectory before…and happened to be in the right place at the right time as the whole world decided we needed to communicate well on video,” Rosenblatt Securities analyst Ryan Koontz, told BBC News this week.
However, as Zoom’s popularity surged, problems surfaced as well. In late March, when Zoom saw its first wave of user influx, repeated occurrences of the so-called “Zoom-bombing,” the name given to hijacking incidents that sparked public scrutiny into the software’s security. The incidents led to New York Attorney General Letitia James writing a letter urging the company to address the issue.
Despite Zoom executives apologizing for security lapses and rolling out software fixes, schools, governments and many corporate clients, including Tesla, stopped using the app after the revelations.
In Tuesday’s report, Wall Street analysts are expecting a quarterly revenue of $202 million and a profit of $0.09 per share. For the full fiscal year ending January 2021, the company has projected sales to reach $905 million and profits to fall between $0.42 and $0.45 per share.
“They have this amazing brand… now they have to leverage that brand and figure out which markets they’re going to go after,” Koontz said. “The stakes are higher and the competition’s getting tougher, so we’ll see.”
Morgan Stanley analyst Meta Marshall estimates that Zoom had grown its average daily active user count from 4.2 million in January to seven million by end of April, partly due to the growth of the total videoconferencing market during the quarantine. The question is how much of that growth will stay after the pandemic and how many of Zoom users are actually paying customers.
“In order for us to get more positive on Zoom, we would need to see evidence that the monetization is higher than expected, meaning [the] installed base to sell additional services into is larger,” Marshall wrote in a note to investors on Tuesday.
Update: After market close on Tuesday, Zoom reported $328.2 million in first-quarter revenue, up 169 percent from a year ago, and $0.20 per share in adjusted profit, both far exceeding analyst expectations.