Zoom’s Q2 revenue jumps 169% as remote work trend continues

Linda J. Dodson

PALO ALTO, U.S. — Zoom, the videoconferencing service provider, reported record quarterly results on Tuesday after surging to prominence as a tool for home-working employees locked down during the new coronavirus pandemic.

“Work-from-home and social distance initiatives have meaningfully accelerated the adoption and traffic on the Zoom video communications platform,” Zoom CEO Eric Yuan said in an earnings call. “Use cases have grown rapidly as people integrated Zoom into their work, learning, and personal lives.”

The company cautioned that the rocketing user numbers might not be sustainable as travel restrictions ease and people start to return to work.

For the three months ended April, Zoom’s total quarterly revenue grew 169% year-over-year to $328 million, which significantly exceeded the guidance Zoom provided in March and analysts’ consensus.

The company also hit a record of 300 million daily meeting participants in the quarter, up from 10 million in December 2019.

While most of the growth was driven by Zoom’s main market — the Americas — the company also reaped more international customers in the quarter. Asia-Pacific, which accounts for 9.5% of Zoom’s total sales, generated $31.3 million in revenue, more than triple from last year.

Zoom shares — which sold for $36 in its 2019 initial public offering — closed at an all-time high of $208.08 Tuesday before the earnings release.

However, it is not smooth sailing for Zoom in all countries.

In May, Zoom suspended all free service to individual users in China ahead of the annual meeting of the National People’s Congress, China’s legislature, Nikkei Asian Review previously reported. While the country was repeatedly brought up in the March earnings call as an example of how Zoom helps combat coronavirus, it was not mentioned by company executives in Tuesday’s call.

Due to the global pandemic and worldwide lockdowns, Zoom has seen a surge in individual and small enterprise users. As a result, 30% of the revenue recorded in the quarter came from companies with 10 or fewer employees or paid individuals, up from 20% last quarter.

“The increase in customers with 10 or fewer employees also shifted our billing mix, as these customers generally pay monthly, rather than annually like most enterprise customers,” said Zoom CFO Kelly Steckelberg.

“Historically, monthly subscribers have a higher churn rate compared to annual or multiyear subscribers,” Steckelberg added.

The company also said the rapid growth seen in the April quarter might slow down as people return to work and demand from individual users dwindles.

“As governments start to ease shelter-in-place restrictions, we may see a moderation of demand for our services,” Steckelberg said.

Zoom projects revenue for May-July to be in the range of $495 million to $500 million dollars. For the full year, the company gave revenue guidance in the range of $1.78 billion to $1.8 billion, which would be approximately 185% to 189% year-over-year growth.

However, the record quarterly and promising outlook are shadowed by a lower margin due to higher demand from free users. The company’s gross margin in the first quarter was 69.4%, down from 84.2% last quarter, as it ramped up cloud-related expenses to keep up with the usage surge.

Zoom shares traded 2% lower during after-hours Tuesday.

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