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Zoom sees sales boom amid pandemic

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Zoom

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Zoom has become the app many are using to stay in touch with friends, family and work colleagues

When it comes to its growth rate, video conference company Zoom has lived up to its name.

Use of the firm’s software jumped 30-fold in April, as the coronavirus pandemic forced millions to work, learn and socialise remotely.

At its peak, the firm counted more than 300 million daily participants in virtual meetings, while paying customers have more than tripled.

Its newfound popularity has boosted the firm’s finances, despite rising costs.

On Tuesday, Zoom said it expects sales as high as $1.8bn (£1.4bn) this year – roughly double what it forecast in March.

“They were on a very strong trajectory before… and happened to be in the right place at the right time as the whole world decided we needed to communicate well on video,” says Ryan Koontz, managing director at Rosenblatt Securities.

How did Zoom start?

Founder Eric Yuan didn’t intend to make Zoom for the masses.

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Zoom has made Eric Yuan, whose visa application to the US was denied eight times, a billionaire

A Chinese-born software engineer, Mr Yuan started the company in 2011, after years rising through the ranks at WebEx, one of the first US video conference companies, which was purchased by Cisco in 2007 for $3.2bn.

At the time, he faced doubts from many investors, who did not see the need for another option in a market already dominated by big players such as Microsoft and Cisco.

But Mr Yuan – who has credited his interest in video conferencing to the long distances he had to travel to meet up with his now-wife in their youth – was frustrated at Cisco and believed there was demand for software that would work on mobile phones and be easier to use.

When the firm sold its first shares to the public last year, it was valued at $15.9bn. That shot to more than $58bn on Tuesday.

“What Zoom has done is kind of democratised video conferencing for all kinds of businesses and made it very simple for everyone from yoga instructors through to board room executives to deploy video,” says Alex Smith, senior director at Canalys.

When the lockdowns started, Zoom lifted the limits for the free version of its software in China and for educators in many countries, including the UK, helping to drive its popularity.

But the firm’s bread and butter customers are corporate clients, who pay for subscriptions and enhanced features.

Zoom said on Tuesday that sales jumped 169% year-on-year in the three months to 30 April to $328.2m, as it added more than 180,000 customers with more than 10 employees – far more than it had expected.

It also turned a profit of $27m in the quarter – more than it made in all of the prior financial year.

Reputational hit

The massive uptake has also strained the firm, forcing it to invest to expand capacity to meet the needs of new users, many of whom are not paying customers.

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Its reputation also took a hit, as the new attention prompted hackers to hijack meetings and exposed a host of security flaws, revealing that the firm had sent user data to Facebook, had wrongly claimed the app had end-to-end encryption, and was allowing meeting hosts to track attendees.

It has also faced political scrutiny for its ties to China – where it has more than 700 staff, including most of its product development team – which have prompted warnings that it is not fit for government use.

In April, Mr Yuan, who is a US citizen, apologised for the security lapses and the firm started rolling out a number of changes intended to fix the problems. Zoom has also announced a number of new appointments familiar with Washington politics, including H R McMaster, a retired Army general and former national security adviser to Donald Trump.

“Navigating this process has been a humbling learning experience,” Mr Yuan said on an investor call on Tuesday.

Analysts said they expected the company would overcome these reputational blows.

“It’s had that mishap and the fact that its name is still very much used as verbatim with video technology still gives it a lot of momentum and opportunity to continue,” Mr Smith said.

Higher stakes

Mr Yuan has said he hoped to return the firm’s focus to business customers, but has also acknowledged that the pandemic may have changed the company’s path.

“Not only has the world changed since we last reported results … but so have Zoom’s market opportunities and growth trajectory,” chief financial officer Kelly Steckelberg said on Tuesday.

Analysts say they expect Zoom to maintain its focus on business customers, since that’s how it makes money.

But the pandemic is likely to create more challenges for Zoom in that market too, as increased demand for remote work prompts competitors such as Microsoft and Cisco to pour resources into the field.

“The stakes are higher and the competition’s getting tougher, so we’ll see,” says Mr Koontz.

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