November 23, 2021
Go big or go home has a special resonance for Zoom.
Fewer users are Zooming from home, with workplaces and schools – for now – reopening. And as for going big, it's harder than Zoom might have thought. Customers with more than ten employees each numbered about 512,100 in the third quarter. That is 18% more than it had a year earlier, but a shortfall on analyst predictions that it would serve more than 516,000.
It's not to say the company hasn't targeted big corporate customers, but Zoom is finding itself in a tough turf fight against Cisco's Webex and Microsoft's Teams.
That difficult second album
It's all part of a cloud that surrounds Zoom right now, which from being the pandemic poster child has seen its share price drop by 30% since the start of the year. Buying the call center software company Five9 fell through in September, putting an obstacle in CEO Eric Yuan's plans to expand into the lucrative contact center market.
Five9's shareholders turned their nose up at Zoom's offer of $14.7 billion, even though that was a 12.8% premium over their company's traded value.
The proxy advisory firms Glass Lewis and Institutional Shareholder Services both came out against the deal, saying accepting the offer exposed shareholders to a more volatile stock, whose growth prospects were less compelling in a post-pandemic environment. And that's exactly the worry that Yuan's company keeps bumping up against.
Meanwhile, the videoconferencing company saw its revenue growth between August to September slow to just 35%, down from 54% a quarter before and 360% a year ago. This quarter is, to put it in context, Zoom's slowest growth since at least 2018, before its 2019 IPO. But revenue (at $1.05 billion) and profit (at $340 million net income attributable to shareholders) actually exceeded analyst predictions.
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Also, the company expects gentle revenue growth, to between $1.051 billion and $1.053 billion, for the last quarter of the year, says CFO Kelly Steckelberg. And after the flubbed Five9 deal, the company is sitting on $5.4 billion on its balance sheet, just in case any other nice purchases happened to catch its eye in the run-up to Christmas.
Eric Yuan joked as much. He asked analysts on a conference call to let him know if they happened to think of "any other cool companies that can help us, you know, to beef up our investment on that front.”
Come in, Enterprise
In the elusive big-corporate market, Zoom says over 2,500 customers are spending over $100,000 a year on its services. And this is up 94% on this time last year. "We would like to double down our enterprise market," confessed Yuan on the conference call.
Meanwhile, there's the question of what to do with an enormous number of free online users. "When we started," says Yuan, Zoom thought of free users as a "marketing platform to promote our brand." It's now rethought that approach and rolled out advertising at the start of November.
Free basic users will see these in some countries on a browser page after a meeting ends. Slowing growth for a pandemic darling isn't entirely limited to Zoom, of course.
Peloton and Teladoc Health have also seen their share prices struggle in the new, vaccinated economy. But Zoom, and everything that comes with it, is now part of the vocabulary.
Taking questions from analysts, the conference call operator at one point had to apologize, saying "I'm sorry. I was on mute."
— Padraig Belton, contributing editor, special to Light Reading
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