Zoom third quarter revenue up 367% as demand shows no signs of slowing

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Zoom Video Communications’ third quarter revenue jumped 367% from a year ago, with the company now numbering 433,700 customers and more than 10 employees.

The company reported third quarter net profit of $ 198.4 million, or 66 cents per share, on revenue of $ 777.2 million. Non-GAAP earnings for the third quarter were 99 cents per share.

Wall Street expected Zoom to post third-quarter revenue of $ 694 million with non-GAAP earnings of 76 cents per share.

For the fourth quarter, Zoom projects revenue between $ 806 million and $ 811 million with non-GAAP earnings of 77 cents per share to 79 cents per share. For the fourth quarter, analysts modeled revenue of $ 730 million and $ 2.4 billion for fiscal 2021.

Zoom forecasts strong demand and said revenue for fiscal 2021 will be between $ 2.57 billion and $ 2.58 billion.

CEO Eric Yuan said the company continues to strengthen its position in the market. “We aspire to provide the most innovative, secure, reliable and high quality communication platform to help people connect, collaborate, build and learn on Zoom,” he said.

The company aims to leverage its momentum to become more of a platform and ecosystem. Last month at Zoomtopia, Zoom launched its gaming platform with Zoom for Apps, applications integrated into the video conferencing experience, an OnZoom, a marketplace for content creators. This year’s Zoomtopia, which was virtual due to the COVID-19 pandemic, highlighted how Zoom has become the go-to platform for remote working and education. Zoom supports over 3.5 trillion minutes of annualized meetings and sees well over 300 million daily meeting participants.

Zoom ended the quarter with $ 1.9 billion in cash and cash equivalents. Zoom reported 1,289 clients contributing over $ 100,000 in revenue over the past 12 months.

There were a few nits in the neighborhood. Notably, Zoom’s third quarter gross margin was 66.7%, down from more than 80% before the pandemic. Gross margins were affected by cloud computing costs as Zoom expands its service and fell 72.2% in the second quarter. In addition, Zoom’s scorching growth over the past year has only increased by 17% sequentially from the second. The sequential growth jump from the first to the second quarter was 40%.

CFO Kelly Steckelberg discussed the costs of the cloud. Steckelberg said:

The third quarter non-GAAP gross margin was 68.2% compared to 82.9% in the third quarter of last year and 72.3% in the last quarter. Part of the impact on our gross margin is due to the dramatic increase in usage related to the pandemic, as we experience a higher percentage of free users, including those at over 125,000 K- educational institutions. 12 who returned to school in the fall. This is also due to the ever increasing use of public cloud services.

Zoom also said Amazon Web Services is their preferred cloud service provider. In a statement, Zoom said it has signed a multi-year agreement with AWS and collaborated on new tools for business customers. Zoom earlier this year said it will also deploy on Oracle Cloud.

The company is also experiencing international momentum.

Yuan also noted some victories from key customers such as Peloton. He said:

Peloton is the leading interactive fitness platform. In the third quarter, Peloton merged into a single vendor that purchased both Zoom meetings and Zoom rooms to provide a more feature-rich video communications service to its employees. We are honored that Peloton is committing to a long term commitment in which they will deploy services to all sites and employees. Rakuten is a global customer that strengthens its engagement with Zoom. Rakuten is a global leader in internet services with 1.4 billion members worldwide. Impressed with the simplicity of Zoom technology, the ease of service scaling and the feature-rich application, Rakuten embarked on the full deployment of Zoom UCaaS.

The big question for Zoom is how it can sustain its growth rates as the COVID-19 pandemic abates. Steckelberg said:

First of all, the work trends, which started before the pandemic, certainly accelerated during this period. And if we all hope for a vaccine sooner rather than later, I think the trends in remote work are here to stay. And we’re excited about some of the features we’ve announced at Zoomtopia, for example, to enable that and to support customers and employees who may be considering returning to work in some kind of hybrid work environment. So it’s things like Smart Gallery, which are really meant to enable better communications when people – some employees are working remotely and some of them are in the office. We are really looking to support an environment like this and we believe our customers, especially our high-end customers, will continue to want to offer this flexibility to their employees.

Here’s a look at Zoom 2020:

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