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No. of Recommendations: 36

It's a good question. But let's also remember there is likely another quarter or two of explosive growth before we get to that point. I don't really have any definitive answers, but here's my view after listening to the call tonight. Maybe it'll help:

1. There is no doubt that their business at this point is heavily influenced by the level of the pandemic. Case in point – EMEA only grew 5% QoQ. Kelly (CFO) confirmed that this was because Europe was in good shape virus-wise in 3Q and they didn’t go back into lockdown until late 3Q/4Q.

2. They say they will continue to see churn in the mass market during the pandemic. Churn in 3Q was below expectations because their sales team was successful in converting monthly mass-market customers into annual contracts. However, they are still projecting the same level of churn that they assumed in 3Q for 4Q (not the actual 3Q churn). More on this below in #4.

3. Zoom Phone is taking off. They again set a record with the largest Zoom Phone deal in 3Q. Features-wise, they think they are in good shape. And their sales team is hard at work upselling Zoom phones to existing customers. They are hiring big time to accelerate the pace of adoption.

4. It’s clear they are totally sandbagging 4Q guidance. You can’t have it both ways. You can’t say that EMEA only grew 5% due to the lower level of the virus, then turn around and model 3Q-like churn for 4Q when the virus is at an all-time high. But they did. I expect them to blow 4Q guidance out of the water. But I also suspect that everyone knows this and is expecting them to do so.

Net… I expect 4Q to look terrific and perhaps 1Q as well as the pandemic isn’t likely to really slow down until the late spring with weather and vaccine distribution. Then it gets interesting. Essentially, there is a race condition here. Will the sales team’s conversions to annual contracts, further adoption of Zoom’s technology to support a hybrid workforce, and penetration of the Zoom Phone adequately replace the current growth in Zoom seats as the pandemic inevitably slows down? I think that’s the question we all need to grapple with.

Unfortunately, as you mention, they aren't providing details on Zoom phone sales. But it sure sounds like they are doing everything possible to keep the growth coming. Buckle up your seatbelts, this should be interesting!

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