What rhymes with 'boom' and is veritably raking it in thanks to the coronavirus pandemic?

Do people even know alternative videoconferencing software exists?


The coronavirus pandemic has been kind to videoconferencing service Zoom, which has seen Q2 2021 revenues soar by 355 per cent year-on-year on the back of widespread adoption by business and personal users alike.

It's also been kind to videoconf biz boss CEO Eric Yuan, who woke up $4.2bn richer this morning after shares rose about 44 per cent in premarket trading.

Revenue for the quarter ended 31 July 2020 was $663.5m, up from $145m in the previous year. This performance builds upon the strong performance displayed in the previous quarter, where the firm's revenue grew by 169 per cent to $328.2m.

CFO Kelly Steckelberg told the analysts' Zoom call – against the background of heavy traffic and the sound of some kind of goods truck backing up (we have to admire the audio quality): "For the quarter, the year-over-year growth in revenue was primarily due to subscription provided to new customers, which accounted for 81 per cent of the increase."

Yep. 81 per cent new. Let that sink in.

It's worth noting that the CFO admitted the firm had experienced "a significantly higher rate of overall churn". The firm forecast only "modest growth" for the last half of the financial year, for an outlook for the full year of FY21 of "$2.37bn to $2.39bn."

The real question facing Zoom from here is how can it sustain this growth over the next 12 months?

The reason behind Zoom's frenetic growth thus far is obvious: the pandemic forced people to work, study, and socialise from the safety of their homes. While many individuals use Zoom to hold socially distanced parties and quizzes, it nonetheless remains a firmly enterprise product. The number of customers with more than 10 employees soared 458 per cent, reaching 370,200. Meanwhile, Zoom saw its number of "whales" more than double as the number of customers spending more than $100,000 per annum grew by 112 per cent to 988.

Net income before taxes was $190.2m compared to $6.7m for the prior year's Q2.

Despite these strong figures, H1 proved challenging for Zoom on the security and privacy fronts. Experts accused the firm of misleading users about its use of end-to-end encryption. Later software updates resolved these issues, but Zoom's stab at redemption fell flat as it initially offered true end-to-end encryption to paying customers, with free users left out. After a flood of criticism, it backtracked and offered the feature to all users.

Separately, Zoom had to wrestle with the newfound phenomenon of "zoombombing" where bored trolls would enter an insecure room to disrupt proceedings. This prompted some organisations to ban the use of the service. One zoombombed San Francisco church filed suit against the company seeking damages after a bible study class was flooded with pornographic images.

It's uncertain how long Zoom's stratospheric growth can last. In many countries, lockdown is being gradually eased as new COVID cases slow to a trickle. In the UK, the government is eagerly encouraging employees to return to the office to support the service industry businesses based in now-quiet commercial districts.

Nick McQuire, senior VP and head of enterprise Research at analyst house CCS Insight, echoed this.

"[These] are truly staggering results and highlight how collaboration and in particular video has gone from nice-to-have technology to mission critical for most businesses in a matter of months," he said. "The real question facing Zoom from here is how can it sustain this growth over the next 12 months?"

According to McQuire, Zoom can expect to be challenged on the two fronts of cost and security.

"As companies now look to standardise on platform, Zoom is going to have to up its game in these areas after several missteps recently if it is to dethrone Microsoft particularly with large businesses," he said.

"According to our data, Teams has much higher penetration due to these factors and when you add in the strength of the Microsoft bundle, which not only includes chat, but Microsoft 365, the future surrounding a narrow tool like Zoom becomes an entirely different question." ®

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