⏯ Is Zoom Zooming Out Of Growth?

Delta Airlines to double hiring; Walgreens hikes wages.

Hey Global Investor! Here’s what you need to know before the US markets open.

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S&P 500 (Tuesday’s Close) 4,522.68 -6.11 (0.13%)

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ZM -16.69%
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⏯​ Zoom: Zooming Out Of Growth?

Video conference service provider Zoom Video Communications (ZM) reported its first-ever billion-dollar quarter on Monday. It went downhill after that as the company signaled a faster-than-expected easing of demand. Shareholders did not seem pleased. (Tweet This)

Meteoric Rise

Zoom was founded in 2011 and launched in 2013 as a video conferencing app geared towards businesses. Within two years of launch, the company had over 40M users. The company went public in April 2019 with an IPO offer price of $36.

Growth was a tough nut to crack, given people’s penchant for in-person meetings. That was so 2019. What a difference a few months make! Pandemic took everything online, and Zoom suddenly found itself in the spotlight for its ease of use.

By May 2020, the company was hosting 200M daily meeting participants, which became 300M in the following month. The company was now first among equals when it came to hosting video calls.

At the same time, privacy concerns and the vulnerability of Zoom calls to potential security breaches caught the company off-guard. The reason? It never expected its user base to triple or even quadruple so quickly.

They had to make credible changes to assure the user base that data security and privacy were paramount to the company. The company added the former National Security Advisor – General H.R. McMaster, to Zoom’s directors. The company undertook a massive exercise to improve encryption and protect user data.

The outcome was telling. Revenue for the full year 2020 rose 317% to $2.6B. The total number of meeting participants increased by a whopping 2,900%. Its market cap crossed the $100B mark, and shares appreciated by over 5x during the year.

All the good news notwithstanding, shareholders started to fret whether Zoom can sustain its meteoric growth rate. Gravity slowly started to make its inexorable moves.

Fear Overshadows Cheer

In Q2, Zoom reported its first billion-dollar quarter. But more importantly, the company signaled that the signs of slowing growth were all around.

Key Stats For Q2:

  • Revenue: $1.02B Vs $991M expected
  • EPS: $1.36 Vs $1.16 expected

Revenue grew by 54% Y-o-Y. This is expected to drop to 31% Y-o-Y in the current quarter. The revenue is expected to cross $4B for the full year, a 2X jump from 2020. EPS is expected to be ~$4.77.

To bolster its portfolio of product offerings, last month, Zoom made two back-to-back investments: it acquired cloud contact-center software provider Five9 for $14.7B in stock; and invested an undisclosed amount in event software maker Cvent. This is expected to add some mojo to the Zoom Events feature, which it had launched in May.

All fine and dandy, you say? The management uttered the words the shareholders didn’t want to hear when releasing the Q2 results: “slowing growth.” That was enough to set the alarm bells ringing.

With people slowly returning to offices and business travel likely picking up on the back of vaccinations, Zoom has its task cut out to stem the tide. 2020 was a game-changer for Zoom. Subsequent years shouldn’t turn out otherwise!

Market Reaction
ZM ended at $289.50, down 16.69%. FYI, ZM is still up nearly 9x from its IPO price of $36.

Company Snapshot 📈

ZM $289.50 -58.00 (16.69%)

Analyst Ratings (28 Analysts) BUY 50%  HOLD 43%  SELL 7%

Newsworthy 📰

Legal Action: Hershey sued by California cookie maker in Hershey’s Kisses dispute (HSY -0.96%)

Demand: Delta Air Lines doubles flight attendant hiring target to 3,000 (DAL +1.33%)

Hike: Walgreens to raise wages for hourly workers to $15 by November 2022 (WBA +4.36%)

Later Today 🕒

  • Veeva Systems Inc. Earnings (VEEV)
  • Chewy Inc. Earnings (CHWY)
  • Okta Inc. Earnings (OKTA)
  • Asana Inc. Earnings (ASAN)
  • Five Below Inc. Earnings (FIVE)
  • Casey’s General Stores Inc. Earnings (CASY)
  • Vera Bradley Inc. Earnings (VRA)
  • 7:15 PM IST: Markit Manufacturing PMI
  • 7:30 PM IST: ISM Manufacturing Index

Fun Fact of The Day 🌞

A man sued Bank of America for erroneously foreclosing on his home and won. When they didn’t pay the fees, he foreclosed their bank

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