Zoom, a video conferencing software developer, reported revenue of $328.2 million for the first quarter of fiscal 2021 ended April 30, 2020, up 169 percent from $122.0 million a year earlier. Net income attributable to the company’s common shareholders was $27 million, a 134-fold increase from $200,000 a year earlier.
Zoom’s first-quarter results, as well as its second-quarter and 2021 fydgall earnings outlooks, beat Wall Street analysts’ expectations, pushing its shares up nearly 5 percent after the session to break the 52-week high. After the earnings announcement, Zoom CEO Yuan Zheng and CFO(CFO) Kelly Steckelberg attended a conference call and answered questions with analysts.
Zoom executives said on a conference call that Zoom had a large number of individual consumer users during the outbreak, but that the company would not develop a separate consumer product strategy but would provide stable and secure video conferencing services to all users.
With so many people counting on Zoom to stay in touch, Zoom’s first priority is to make sure the service is running, but also to consider privacy and security issues, Mr. Yuan said. Privacy is more important than availability if there is a conflict between privacy, security, and availability.
In addition, Mr. Yuan said Zoom will introduce end-to-end encryption and will not charge customers additional fees. “We need to support this advanced feature anyway,” he said. Let our customers realize that their meetings are important. As for commercialization, we don’t want to charge for more features for our customers. “
The following is a summary of the financial reporting conference call:
RBC analyst Alex Zukin: You’ve just released one of the best quarterly results in the history of the enterprise software industry (the first quarter of fiscal 2021 ended April 2020), and I think you’ve got an amazing opportunity to be not only a verb, but a real example of remote work.” But then came the question: Where will Zoom go next? What should the outside world look at your TAM (overall target market) percentage in the current environment? What are the most exciting growth drivers? Do you have any updates on the company’s long-term vision?
Yuan Zheng: That’s a good question. What will the future look like? Anyway, I really believe that video is a new sound that will change everything in communication. The way we work, live and play has completely changed. From that point of view, this is a huge opportunity, there are many opportunities before us. However, for the time being, our priority is to ensure that our services continue to operate properly, as too many people expect Zoom to stay in touch. Our top priority is to ensure that services are up and running, while also considering privacy and security issues.
In the future, we will also consider some new areas of growth to invest in. But for now, I think one thing we’re sure of is that TAM is bigger than we’ve seen before. In addition, we face many other new opportunities, our team will work together, step by step to achieve. But for now, the most important thing is to focus on current products and user experiences, allowing users to stay connected with Zoom during the outbreak. Of course, we hope that the outbreak will end as soon as possible.
Jpmorgan analyst Sterling Auty: You’ve completed a 90-day program, and end-to-end encryption is really a big focus of the security and privacy debate. You’ve also completed the acquisition. Can you tell me when you plan to deploy end-to-end encryption and how? Is there an opportunity to commercialize through upsell?
Yuan Zheng: Before I answer this question, I’d like to share with you what the current industry standard is. Including Zoom and other competing applications, most video conferencing providers use AES 256-bit GCM or CBC, which is the industry (encryption) standard. If end-to-end encryption is enabled, guess what, you can’t dial in with a traditional phone, you can’t support traditional legacy devices. In addition, there are some limitations to cloud recording. That’s why most video conferencing vendors don’t currently support this standard.
However, we believe that we need to support this advanced feature anyway. Let our customers realize that their meetings are important. If you don’t want Zoom to know the session key, you can enable encryption in a limited way, which also allows the phone to dial in. In terms, we believe that this feature should be part of our products. As for commercialization, we don’t want to charge for more features for our customers.
KeyBanc analyst Alex Kurtz: Is Zoom experiencing user churn in areas where the outbreak has been quarantined and home-based, whether in the United States, Europe or Asia?
Steckerberg: Although some areas have been deregulated, it’s too early to say that.
JMP analyst Pat Walravens: “Initially, you were a corporate product company, but now so many people are using Zoom to reach out to their friends, family and classmates. Will this change your future strategy? What is your consumer strategy (for individuals)?
Yuan Zheng: Today’s trends suggest that video conferencing will become a mainstream service. The line between consumers and business customers is not clear, and we must maintain a consistent experience. That’s why we build many of the features for our corporate customers, and they can be used by individual consumers in a similar way. However, for enterprise customers, we have ensured that all security features are in place. Today, it’s important to make these features easy for individual consumers, and that’s the challenge we’re facing right now.
When it comes to opportunity, I don’t think we need a specific consumer product strategy. Our strategy is to provide a service that helps you stay connected no matter where you are, no matter what you do, no matter what device you use.
Morgan Stanley analyst Meta Marshall: When it comes to hiring sales people, will your hiring strategy shift with the influx of new customers: more “gatherers” salesmen than “hunters” salesmen?
Yuan Zheng: To be sure, we have doubled the number of sales people since the end of last year.
Citigroup analyst Walter Pritchard: Can you tell you about the loss of customers. It is clear that the demand for customers with fewer than 10 employees is unprecedented. How do you think customer churn has changed compared to historical situations?
Steckerberg: What I’m saying is that we’ve taken a very conservative approach to assuming that historical standards don’t necessarily apply to us, primarily because of size and potential economic uncertainty. So, we predict it by using multiples of historical churn.
Walter Pritchard: What do you think of the level of sustainable growth for new customers in the coming quarters? Do you think what happened during this period has been driving demand for years, or do you think it has greatly raised awareness of what you’re doing so that when the outbreak is over, you’re going to attract more new customers?
Steckerberg: In the first quarter and the beginning of the second quarter, we saw a lot of channel creation, which is a very positive sign. Keep in mind that our sales strategy around Zoom Phone and Zoom Rooms is to sell to our existing customer base. So this creates new opportunities for future products and sells them in the future.
Bernstein analyst Zane Chrane: How do you strike a balance between data security and privacy issues and ease of use? This is all the more complicated today as you are making a big push into the consumer space. How do you balance this from a technical and user interface perspective?
Yuan Zheng: Our services are mainly for corporate customers to build, all services have built-in security features. If there is a conflict between privacy, security, and availability, I think privacy security is more important than availability. At that time, we can not lose ease of use, which is also critical. That’s why we’ve hired a number of security researchers and engineers to make sure our services allow users to use them safely and as much as possible in terms of privacy and security. It’s an ongoing effort and we’ll stick to it.
William Blair analyst Bhavan Suri: Over the past few months, given your success and the impact of the outbreak, we’ve seen Blue Genes acquired, and RingCentral has announced its own video solution. In the short term, these may not have a material impact. But how do you deal with it in the future and how do you differentiate it?
Yuan Zheng: In view of the current competitive landscape, I don’t think the outbreak has changed anything, we still focus on video, we also have services. Of course, the market opportunities are much greater than before. I would like to say that any competition is good for consumers. And if we don’t have competitors, we won’t be pushing us forward. So we welcome competition, and we do everything from the end end.”
Stephens analyst Ryan MacWilliams: Corporate communications is still a fragmented market with low overall cloud penetration, and will it be integrated around competition from 1 to 2 companies in the next few years?
Yuan Zheng: It’s too early to draw conclusions. But on the whole, I really believe that only the best service providers can survive and thrive. For video and voice, it’s not easy for customers to want to use it anytime, anywhere, and on any device. Otherwise, why would customers trust and use Zoom so much in this outbreak crisis because it is effective enough, quality, and innovation.
Robert W. Baird analyst Will Power: Can you talk about Zoom in the field of education?
Yuan Zheng: We provide free services to more than 100,000 K-12 schools worldwide. I think they might continue to use Zoom for online instruction throughout the summer. Currently, we only help these K-12 schools, mainly because we used to focus on the high end of the market. But today, we will serve more and more K-12 schools. (Yamin)