Zoom is Zooming
A Brady Bunch-esque communication platform "zoomed" into the spotlight this year, as businesses, schools, and individuals alike sought ways to stay connected and productive amidst the pandemic.
Interestingly, when Eric Yuan founded Zoom Video Communications, Inc. (ZM) and developed its easy-to-use video conferencing platform, he didn't anticipate that it'd be for the masses. Instead, he developed the platform for better corporate communications, primarily for large corporations with IT support. Companies like Gap, Inc. (GPS) and Williams-Sonoma, Inc. (WSM) were early customers.
At the time of its IPO in April 2019, Zoom boasted collaborations with approximately 90 of the Cloud 100 (a ranking that Forbes gives to the top private cloud companies). The company also revealed more than half of the 500 largest companies in the U.S. had at least one paid account on Zoom back in April 2019.[1]
But then the pandemic swept the globe—and the number of Zoom users skyrocketed in 2020.
In April 2020, Yuan posted a statement on the Zoom blog to address the surge in demand that the company experienced seemingly overnight. More than 90,000 schools in 20 countries worldwide accepted Zoom's offer to provide remote education services. Yuan also noted that from December 2019 to March 2020, Zoom's daily meeting participants (free and paid) soared from about 10 million to more than 200 million.[2]
According to Zoom's latest quarterly results, the company now has about 433,700 corporate customers that employ ten or more people. That represents a 485% year-over-year increase. Zoom also noted that nearly 1,300 customers added more than $100,000 to the company's 12-month trailing revenue, or a 136% year-over-year increase.
With the rise in Zoom's popularity this year, Yuan was quoted as saying that he was "proud to see that our platform is serving a critical role beyond our original vision."
The addition of new customers that include small and large businesses, big corporations, hospitals, healthcare facilities, schools, and individuals amidst the global pandemic has undoubtedly added to its top and bottom lines.
During Zoom's third quarter in the fiscal year 2021, revenue increased 367% year-over-year to $777.2 million. That's up from only $166.59 million in the same quarter a year ago. Total revenue for the first nine months of the fiscal year 2021 was $1.77 billion, compared to $434.41 million in the first nine months of the fiscal year 2020.
Third-quarter earnings are equally impressive. Third-quarter adjusted earnings surged 1,079.4% year-over-year to $297.2 million, or $0.99 per share, up from $25.2 million, or $0.09 per share, in the third quarter of 2020. For the first nine months of the fiscal year 2021, earnings came in at $630.34 million, or $2.12 per share, compared to $58.05 million, or $0.20 per share, in the same period a year ago.[3]
And Zoom isn't showing any signs of slowing down.
In fact, for the fourth quarter in the fiscal year 2021, Zoom expects revenue between $806 million and $811 million and adjusted earnings per share between $0.77 and $0.79. That compares to fourth-quarter revenue of $188.3 million and adjusted earnings per share of $0.15 in the fiscal year 2020.
For full-year 2021, Zoom is looking for total revenue between $2.575 billion and $2.58 billion, up from $622.7 million in the fiscal year 2020. Full-year adjusted earnings per share are forecast to be between $2.89 and $2.91, which compares to $0.35 last year.
Considering Zoom's growth trajectory over the past year and its outlook for the remainder of its fiscal year 2021, is it any wonder that Yahoo! Finance named Zoom its 2020 Company of the Year?
But the real question is: Is Zoom still a good buy?
That all depends on several valuation metrics that one might look at in analyzing the company.
There's certainly a lot of debate as the stock has soared close to the sun this year. Shares have zoomed more than 500% year-to-date. And with multiple COVID-19 vaccines on the FDA's desk, many wonder if Zoom's services will still be in hot demand in the New Year.
If you would like to know our view on Zoom, give me a call to schedule your appointment.
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[1] https://www.forbes.com/sites/alexkonrad/2019/04/19/zoom-zoom-zoom-the-exclusive-inside-story-of-the-new-billionaire-behind-techs-hottest-ipo/?sh=47ddc7264af1
[2] https://blog.zoom.us/a-message-to-our-users/
[3] https://investors.zoom.us/news-releases/news-release-details/correction-zoom-reports-results-third-quarter-fiscal-year-2021