In its recently reported fourth-quarter results, Zoom Video Communications Inc. put up strong numbers, beating revenue expectations by $17 million and operating income by $32 million.
Looking ahead to fiscal year 2025, Zoom management projected revenue of about $4.6 billion, representing revenue growth of 1.6%, in line with Wall Street expectations. The company reported a bullish outlook for earnings, estimating $4.85 to $4.88 per share, well ahead of consensus estimates of $4.72 per share. All in all, it was a solid quarter for Zoom, and the stock rose more than 10% in after-hours trading.
Still, it’s important to look beyond the numbers to understand the state of the business and whether the company is headed in the right direction. After reading the earnings transcript, Zoom seems to have the right parts of the business firing. These are most notable points:
- CCaaS license growth increased 3X year-over-year. The company also had two large wins with ARR greater than $1M. If there is one metric that Zoom watchers should be tracking, it is contact-center-as-a-service momentum, as the company has made this its No. 1 priority. On the earnings call, CEO Eric Yuan pointed out that he is now the general manager for the contact center business. About a month ago, I met with Yuan in the Zoom offices, and he told me he did that to enable the CCaaS business unit to act as a startup inside Zoom. On the earnings call, Yuan was particularly optimistic, driven by the completeness of the offering. “A huge enterprise customer wanted to buy 1,000 agent seats, and we sold them Zoom Expert Assist, workforce management and employee management,” he said. “You can see Zoom has become a full-suite contact center offering. We can now compete head-to-head with any of the legacy incumbents.”
- Zoom Phone’s continued growth. On the call, Chief Financial Officer Kelly Stackelberg highlighted that the number of Zoom Phone customers with 10,000 or more seats grew 27% year-over-year, to 95. Despite its success, there is still industry chatter that Zoom Phone cannot meet the needs of telephony-heavy organizations. The large customer wins are one testament, but there are other indicators. I recently talked to the chief information officer of a law firm that signed with Zoom for over 2,000 Phone seats. When I asked the CIO why Zoom, given legal considerations, is so phone-centric. He told me he was initially skeptical, but Zoom has all the required features. In fact, seven of the 10 largest law firms in the U.S. now use Zoom Phone.
- AI Companion is now deployed in over half a million accounts. Launched only five months ago, AI Companion is being used in more than 510,000 accounts to create more than 7.2 million meeting summaries, up from 2.8 million last quarter and 220,000 the quarter before. The next big communications battleground is AI; ramping up this part of the business now is critical to long-term customer retention.
- Zoom Chat usage has increased by 130% across its paid accounts. If one feature has made Microsoft Teams sticky, it’s chat. Once customers use chat, they start putting data in it, and it becomes incredibly difficult to remove, so winning the chat battle is a big step in winning the collaboration war. To help ease the pain of migrating, Zoom created a migration tool, which, according to Zoom, has seen a four-times increase in downloads over the past six months. During her portion of the prepared remarks, Stackelberg specifically called out Zoom Chat as an important component in customer retention.
- The enterprise segment increased 9% year over year. The Street had estimated enterprise growth to be a tepid 3% but Zoom blew that out of the water. Larger customers now account for 58% of Zoom revenue. The company started as a prosumer and small business provider but has steadily worked to move up the market and appears to have cracked that code. Enterprises bring larger deals with more products and higher margins, so Zoom’s ongoing ability to win more in this segment bodes well for the future. It’s worth noting the Online portion of the business was flat year-over-year, a marked improvement over the 10% decline a year ago. Stabilizing the Online business is something investors have been waiting for since the pandemic gave the company an artificial boost.
The ”land and expand” strategy isn’t unique to Zoom. All the unified-communications-as-a-service and CCaaS providers want to work from their position of strength and add other products.
What’s interesting about Zoom is they have something few information technology vendors have: demand from the user community. During the pandemic, lawyers, doctors, consultants and others used Zoom to attend parent-teacher meetings, church services and event fantasy football drafts. People generally like Zoom, are comfortable with it, and are not afraid to ask for it in the workplace. As the UCaaS and CCaaS vendors start stepping on each other’s toes, pull from the user community should tip many scales Zoom’s way.
With earnings calls, there are many ways to hit a number, but Zoom is focusing on the right activities, which should put it in a position for long-term success.
