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No. of Recommendations: 31
-Third quarter total revenue of $777.2 million, up 367% year-over-year vs. consensus expectations of $694.5 million, suggesting 316.9%.

-Number of customers contributing more than $100,000 in TTM revenue up 136% year-over-year

-Approximately 433,700 customers with more than 10 employees, up 485% year-over-year

-A trailing 12-month net dollar expansion rate in customers with more than 10 employees above 130% for the 10th consecutive quarter

Other Highlights:

Income from Operations and Operating Margin: GAAP income from operations for the third quarter was $192.2 million, compared to GAAP loss from operations of $1.7 million in the third quarter of fiscal year 2020. After adjusting for stock-based compensation expense and related payroll taxes, and acquisition-related expenses, non-GAAP income from operations for the third quarter was $290.8 million, up from $21.3 million in the third quarter of fiscal year 2020. For the third quarter, GAAP operating margin was 24.7% and non-GAAP operating margin was 37.4%.

Net Income and Net Income Per Share: GAAP net income attributable to common stockholders for the third quarter was $198.4 million, or $0.66 per share, compared to GAAP net income attributable to common stockholders of $2.2 million, or $0.01 per share in the third quarter of fiscal year 2020.

Non-GAAP net income for the quarter was $297.2 million, after adjusting for stock-based compensation expense and related payroll taxes, acquisition-related expenses, and undistributed earnings attributable to participating securities. Non-GAAP net income per share was $0.99. In the third quarter of fiscal year 2020, non-GAAP net income was $25.2 million, or $0.09 per share.
Cash: Total cash, cash equivalents, and marketable securities, excluding restricted cash, as of October 31, 2020 was $1.9 billion.

Cash Flow: Net cash provided by operating activities was $411.5 million for the third quarter, compared to $61.9 million in the third quarter of fiscal year 2020. Free cash flow, which is net cash provided by operating activities less purchases of property and equipment, was $388.2 million, compared to $54.7 million in the third quarter of fiscal year 2020.
Customer Metrics: Drivers of total revenue included acquiring new customers and expanding across existing customers. At the end of the third quarter of fiscal year 2021, Zoom had:

Approximately 433,700 customers with more than 10 employees, up approximately 485% from the same quarter last fiscal year.

1,289 customers contributing more than $100,000 in trailing 12 months revenue, up approximately 136% from the same quarter last fiscal year.


Financial Outlook: Zoom is providing the following guidance for its fourth quarter fiscal year 2021 and its full fiscal year 2021. Zoom's revenue outlook takes into consideration the demand for remote work solutions for businesses. It also assumes increased churn in the fourth quarter when compared to historic churn levels due to a higher percentage of customers who purchased monthly subscriptions.

Fourth Quarter Fiscal Year 2021: Total revenue is expected to be between $806.0 million and $811.0 million and non-GAAP income from operations is expected to be between $243.0 million and $248.0 million. Non-GAAP diluted EPS is expected to be between $0.77 and $0.79 with approximately 306 million non-GAAP weighted average shares outstanding.
Full Fiscal Year 2021: Total revenue is expected to be between $2.575 billion and $2.580 billion. Non-GAAP income from operations is expected to be between $865.0 million and $870.0 million. Non-GAAP diluted EPS is expected to be between $2.85 and $2.87 with approximately 300 million non-GAAP weighted average shares outstanding.

-Charles
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No. of Recommendations: 28
Q3 big fish customers: 1289
Q2: 988
30% QoQ growth

Q3 accounts with >10 employees: 433,700
Q2: 370,000
17% QoQ growth
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No. of Recommendations: 5
485% growth in customers >10 employees. Presentation slides highlight Peloton as a new customer along with Rakuten. Love it when my portfolio has such synergies.
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No. of Recommendations: 14
Slide 14 – Growing Future Revenue under Contract
Turning to the balance sheet. Deferred revenue at the end of the quarter was $855 million dollars, up 324% year-over-year. Looking at both our billed and unbilled contracts, our RPO totaled approximately $1.6 billion dollars, up 215% from $517 million dollars year-over-year. The increase in RPO is consistent with the strong demand and execution in the quarter.



Zoom Q3FY21 Earnings - Prepared Remarks We expect to recognize approximately 72% or $1.2 billion dollars of the total RPO as revenue
over the next 12 months as compared to 64% or $330 million dollars in Q3 last year.
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No. of Recommendations: 18

Q3 big fish customers: 1289
Q2: 988
30% QoQ growth

Q3 accounts with >10 employees: 433,700
Q2: 370,000
17% QoQ growth


Also from a QoQ view:
Q3 rev: $777.2 M up 17%
Q2 rev: $663.5 M up 102%
Q1 rev: $328.2 M up 74%
Q4 rev: $188.3 M up 13%
Q3 rev: $166.6 M up 14%
Q2 rev: $145.8 M

Q2 and Q3 were "full COVID" quarters. Q1 was over half COVID. The QoQ growth between the adjacent full COVID quarters seems more meaningful than YoY growth between a non-COVID and a COVID quarter. They are smart to try to expand their base of services while they have the spotlight.
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No. of Recommendations: 12
I think the question everyone should be asking instead of being star struck by giant percentage Yr/Yr comps is where does zoom go from here post-pandemic. I'm not yet convinced even after listening to the Call, there were not many details regarding zoom phone which seems like many analysts were trying to get a stronger understanding on. Need to understand more on Zooms' optionality and opportunity.
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No. of Recommendations: 22
As far as I could see, there were only a few negatives in the quarter, gross margins (free users, increased public cloud usage). Customer growth dropped off in percentage terms, Sales and marketing expense increased significantly.

But these points are splitting hairs. It was another excellent quarter. As far as I could see, the only thing that is unclear is what TexasTitan pointed out. What happens Post-COVID?


You either believe:

1. The world returns to pre-COVID, everyone back in the office, video conferencing drops, ZM churn rockets up.
2. The world shifts to a 'hybrid' work-from-home model, where some people are in the office, others are working from home, cafes, etc.

If you believe 1, you should probably ditch ZM. If you believe 2... you should consider their other products, the ZM Phone, OnZoom, ZoomRooms, Chat etc. Will companies standardise on ZM as their communications platform?


TexasTitan was right IMO, there weren't a lot of details on the call. The positives that stood out to me were:

1. Lower than expected churn.
2. Using Q2 churn forecast for Q3 (Q3 was lower than expected), for their Q4 guidance.
3. Government was their strongest growth vertical.

I expect they'll beat guidance in Q4 as well. But there wasn't a lot in the results that suggested that ZM wasn't doing really (really) well.


cheers
Greg
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No. of Recommendations: 36
TexasTitan,

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!

-Dave.
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No. of Recommendations: 2
They have decelerated revenue growth significantly from prior QoQ (How could they not?). $328 -> $664 -> $777 -> Guidance of $810

Their QoQ % change is:
Q4FY19 15% 19.6% 14% 12.5% 74% 102% 17% (est. for Q4FY21 based on $840MM) 8%

They are projecting to grow only 4%, If they overdrive to $840, that doubles their growth rate, but is still down 50% from this last Quarter.
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No. of Recommendations: 8
GD,

Their Q3 guidance was $690m at the top end. The actual rev was $777mil (12.6% above top end)

Applying the same 12.6% above the top end gives Q4 ~$913 mil. This will represent 17.5% QoQ growth

Bnh91
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No. of Recommendations: 7
Some things I loved:

- International Growth up 629% YoY

-International Customers now make up 30.7% of total revenue, 17.4% in EMEA and 13.3% in APAC

-"We plan to continue to invest in international
expansion to capitalize on our brand awareness and the increased global opportunity."

-Peloton, which I hold, committed to a long-term engagement where they will deploy services across all locations and employees.

-Outstanding Guidance: "For the full year of FY21, we expect revenue to be in the range of $2.575 to $2.580 billion
dollars, which would be approximately 314% year-over-year growth. We expect non-GAAP
operating income to be in the range of approximately $865 to $870 million dollars which would
be approximately 876% to 881% year-over-year growth. Our outlook for the non-GAAP
earnings per share is $2.85 to $2.87, based on approximately 300 million shares outstanding."
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No. of Recommendations: 47
I work a lot internationally; when times were normal I would travel internationally about a quarter of the time for work, usually to Asia and Africa. Here is how I see the situation in my work changing after immunization for Covid-19 rolls out:

In the Covid-19 era I spend most of my day on Zoom, wake up very early most days to talk with people working on projects in Asia, Africa and Europe. Most of the time the connection is smooth, less so for countries like Ethiopia because their infrastructure isn't so good but many countries have really good internet-- especially those in Asia, it often sounds like it's next door, better than local calls even. As I said before, Zoom quality is so much better than anything else--to their credit, the quality of calls on Microsoft Teams has improved a lot over the past 6 months, but the interface and quality is not at the same level yet. Nobody I know uses Webex anymore, before Covid-19 about half of my calls were with them.

When you combine internet build out with the tremendous capacity development that has happened in many countries over the past 20 years I feel like in my field we will never go back to the days of traveling so much.. yes I will start traveling early next year probably when we are permitted to, as some travel is essential, but this experience has taught me that perhaps up to half of the travel that I used to do can be replaced with calls, delegating more to colleagues and consultants in countries etc.

It also saves a ton of money and reduces my carbon footprint, and makes my wife happy, although my teenage kids would probably be happier to have me on the road.
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No. of Recommendations: 18
TexasTitan,

I think the simple answer is international video conferencing which is growing 629% YoY.

It reminds me of NFLX. As US growth first rose then slowed, international followed a similar trend but delayed a few years. I think that ZM is moving faster than NFLX because of the rate of adoption due to Covid. However I still think 2021-2022 will have YoY growth due to international business.

Could be wrong, but that's what I believe the catalyst for the next year or two will be.
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No. of Recommendations: 33
You either believe:

1. The world returns to pre-COVID, everyone back in the office, video conferencing drops, ZM churn rockets up.
2. The world shifts to a 'hybrid' work-from-home model, where some people are in the office, others are working from home, cafes, etc.


As far as I can tell the world has never gone backwards. Why should it in this particular case? The reasons I see it going forward are the new technologies and facilities that have been created and the associated cost efficiencies like less commuting, less office space, and even saving on clothing and food.

The covid-19 driven spike will create a few quarters with difficult comparisons as Zoom adjust to the new plateau and this might induce some investors to sell. I'm less willing to make bearish predictions so I'll just watch developments before taking any action.

Taking profits in October turned out to be a good move but the reason for taking profits was that the position had grow too large, 40% of the portfolio. At this time ZM is a hold for me and still my largest position.

Denny Schlesinger
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No. of Recommendations: 14
I'm pretty sure everyone agrees that the world won't go into a pre-pandemic mode. It will be a hybrid environment and there is no point - in my eyes - even discussing a return to pre-Covid environment.

Another point is to assess the future of the Zoom's business in such hybrid world. In my opinion the future of the Zoom's business is bright! I see big runway in the core business, exploring different verticals (education, healthcare etc), international expansion, optionality in phone and other communications, platform development etc.

I expect next fiscal year revs should reach or exceed 4b and we're looking at 10b revenues in 3-4 years or so. If we take next year 4b (conservatively) and compare to 135b valuation today - it's a bargain ! At 34x forward PS its cheaper than TTD growing at 30% or DDOG growing in 50s or so.

I also suggest folks to read a long-term thesis on ZM from Tom Gardner. I won't be posting it here due to the rules, but just mention that he sees 1 trillion valuation in 10 years. So, we're looking at 8x from today's price in 10 years. Not too shabby if this will come true... :)

ZM is my biggest position and I'm happy with the results and definitely keeping it.
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No. of Recommendations: 14
Our company, we are in the airline supply industry, announced a WFH policy where everyone will be allowed to work from home for 60% of the time (or less). And we are not some fancy tech company, so I believe few companies will go back to before and it will be more hybrid model. The need for these tools will not disappear.
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No. of Recommendations: 52
I stumbled on an interesting and astounding statistic which you might miss. Zoom's over $100,000 customers were 1289 this quarter, and were 988 last quarter sequentially. That means that they increased their number of big customers by 30.4% SEQUENTIALLY!!! Read that again! It really astounded me. And this is a trailing twelve months figure, not an annual recurring revenue figure, so it's not even counting many new $30,000 or $40,000 per quarter customers, because they don't have $100,000 yet looking backwards. Interesting....

Saul
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No. of Recommendations: 6
It's clear we won't return to a pre-Covid world, it's also clear to me that we won't forever live in a Covid scenario. Reality will be a mix:
- education (universities, schools) will go back to in-person teaching mostly
- businesses will likely adopt a mix of office and WFH
- travel won't recover to pre-crisis levels, simply because it's so expensive (time and spend), and companies have learned that video conferencing will do just fine most days.

Still, at current valuation, there is a ton of future growth baked in, and I'm not sure where that's going to come from.

Downside/limitations:
- just about every company is now using video conferencing already. If they haven't had a need in the last 9 months, they probably won't have one in the future either. This includes international of course.
- other suppliers will catch up eventually and video conferencing risks becoming a commodity that any number suppliers can handle

Upside:
- companies like mine, who already have been intensive users of video conferencing, switched to Zoom because solutions like Lifesize or Google meet weren't able to handle calls with 300+ participants. Zoom was. So even with video conferencing fully rolled out, there might still be a gradual shift towards Zoom as best-in-class supplier
- other bolt-on features/expansion into other products

I'll stay put for now, but having a hard time seeing a lot of upside in the stock. Just growing into its current valuation will require a continued impressive performance.
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No. of Recommendations: 1
Denny,

I have not seen any figures on productivity for workers at home, compared to productivity of the same workers from home. I think worker productivity will be the deciding factor.

Gordon
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No. of Recommendations: 37
I have replied to Greg, VTDave, and Retirementdough below

Greg,

You either believe:

1. The world returns to pre-COVID, everyone back in the office, video conferencing drops, ZM churn rockets up.
2. The world shifts to a 'hybrid' work-from-home model, where some people are in the office, others are working from home, cafes, etc.

If you believe 1, you should probably ditch ZM. If you believe 2... you should consider their other products, the ZM Phone, OnZoom, ZoomRooms, Chat etc. Will companies standardise on ZM as their communications platform?

1. Lower than expected churn.
2. Using Q2 churn forecast for Q3 (Q3 was lower than expected), for their Q4 guidance.
3. Government was their strongest growth vertical.

I expect they'll beat guidance in Q4 as well. But there wasn't a lot in the results that suggested that ZM wasn't doing really (really) well.



I agree with your statements but to elaborate on the two camps and churn...

Regarding going ‘back-to-normal’ vs a hybrid situation. I would say if anyone has children doing lessons at home know what a pain it is and parents don’t want that trouble : ) . My kids teachers prefer in person teaching - better engagement and participation. Post-pandemic will affect the education vertical. (And what about the ‘college experience’ ?!). I have 2 elementary kids and I can’t wait till they can go back to normal schooling.

On commercial business, not all roles are effective in WFH model. ‘individual contributors’ are fine but roles that manage people are difficult. Anyone that contributes cross-departmentally or has unstructured work or role knows how difficult it is to get things done. Some things simply need a drop by their office and have a quick conversation.

I would say generally that in-person participation and engagement is important.

1. If we go back to Q2 the trend and story that was new COVID cases going down, summer would help , etc. Expectations would be that churn would increase as cases go down. The reality was that COVID kept dragging on with spotty waves around the country and now globally increasing in q4.
2. Per above
3. I’m not sure if I feel that government being the strongest is a positive or ‘negative’ rather than commercial business


VTDave,

I have no doubt Q4 will be strong, but I want to keep in my mind that I invest in the future. And in this case it is trying to see what Q1 2021 going forward will look like. Am I investing in a video conferencing platform or a communications ecosystem? I guess with less than 6 months to a potential post-COVID world I would have expected more talk about what their future strategy would be like. I want to know what are they going to push for and invest into.

Dramatically speaking - my ears are ringing from what felt like short-term thinking of moving prudent monthly subscribers into annual. I would say let the customer decide what’s right for them because - what value are they adding for that 1yr commitment? And how is that best for the customer? (Sounds harsh, yes, but I get pitched a lot at work)

For most cloud platforms I generally think of the runway for continued growth as more modules, features and integrations to create more value. I feel like this is much more limited with video conferencing. So that leads me to the question what other product innovations will drive continued growth and what is the adoption like? This seems like zoom phone and the potential for extending into a ‘communications ecosystem’.

That being said, I’m not going to invest in hope - so I would really want to keep an eye on how they are doing with zoom phone and any new ways to innovate, integrate, or drive post pandemic growth.

Retirementdough,

I think the simple answer is international video conferencing which is growing 629% YoY.

It reminds me of NFLX. As US growth first rose then slowed, international followed a similar trend but delayed a few years. I think that ZM is moving faster than NFLX because of the rate of adoption due to Covid. However I still think 2021-2022 will have YoY growth due to international business.

Could be wrong, but that's what I believe the catalyst for the next year or two will be.

I guess my response would be...if in a pandemic world where we have the MOST INCENTIVE to WFH and use video conferencing and everyone is using zoom - what would drive growth in the future when it becomes an option rather than a necessity?

NFLX provided entertainment with great value internationally when very limited options existed - this to me is a clear driver for growth. I can’t see as clearly with zoom at this point in time.


With all this being said, I will say that my conviction has decreased and I am somewhat willing to wait another quarter to see what strategies and plans maybe revealed to shield light on my two points below:?
1. ZM will need to build a case for where their product offering goes from here, will it become an ecosystem, will it partner & integrate? (zoom phone, etc)
2. What will drive future sales growth when a necessity turns into an option.

This being my single longest post yet, I just want to be clear that I don’t intend to be overly harsh in any of my responses. Just trying to elaborate my critical view point as best as I can. I’ve set my personal bar with zoom very high because it is not what I would call the stickiest platform.
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No. of Recommendations: 2
Hi Saul, it is perhaps worth noting that 18% of their revenues comes from these customers, as mentioned on the call yesterday. Zoom is still very much a mom and pop and small to medium size customer business.

from call yesterday.

Tom McCallum

Hi, this is Tom. Just wanted to point out on the last question that James asked, it is 18% coming from the greater than 100k.
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No. of Recommendations: 9
in regards to productivity from home vs in the office. My company is in aerospace and we have found that keeping the essential workers in the plant (integration, test, etc), while keeping the rest of us home (engineering, support, etc) has worked really well. Productivity dipped at first as we all adjusted to WFH, but we quickly recovered and productivity is very close, or even better, than when we were in the office full time.

as a manager, I have seen productivity increase - people are working longer - they are spending the time they would have spent commuting on producing work. I have had some team members find it very easy to take an hour off for dinner, then jump back on to finish a task that would have waited til the next day.

of course, I have had a few the other way, but that is my job - to work with them and reduce the downside.

can we sustain it? I think so, though some people really miss the personal touch and being around the team. we are looking at ways to mitigate this.

as for ZM: We dont use it, but have a few corporate accounts that are for big meetings. i am hoping and trying to get them to get more licenses, as Skype is just not working very well for us. not good sound quality, frequently dropped attendees (happened to me yesterday right before I had to do a presentation), etc. We shall see.

Zoom is about 5% position for me (which is a large position for me, I am still learning this new approach), and I plan on holding it for now. I like where they are going, and may add on the dips.

dave
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No. of Recommendations: 5
Hi Saul, it is perhaps worth noting that 18% of their revenues comes from these customers, as mentioned on the call yesterday. Zoom is still very much a mom and pop and small to medium size customer business.

from call yesterday.

Tom McCallum

Hi, this is Tom. Just wanted to point out on the last question that James asked, it is 18% coming from the greater than 100k.


Relatively low penetration in corporate customers exactly is one of the big business opportunities and growth drivers moving into the future in my eyes.
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No. of Recommendations: 0
Hi Dave and others that see WFH has good productivity right now.

Most departments, entire teams and companies are WFH. What happens when 100% changes to 30-60% of those teams and meetings are with remote employees. How will we manage the split of who is on site and attending virtually? The type of interaction is very different going forward..
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No. of Recommendations: 5
I think worker productivity will be the deciding factor.

I don't think it's as simple as that. Some people will work as well or better at home while others need closer supervision. Some people will have distractions at home, other less or none. Saving on commute time might improve productivity. In my first job they didn't care how many hours I worked but the results I got. Other jobs might be more time dependent. I had one customer who wanted me to work outside business hours and the only way I would do that was from home. This was 25 years ago! I connected with his computers via telephone modems! As WFH takes root, hiring practices will follow suit and the makeup of the staff will likely vary.

In complex systems they use the concept of the fitness landscape, think of it like a moonscape where everyone is trying to scale peaks. Funny things happen, if you reach the top of a low peak the only way to go higher is to go lower to find a higher peak. As players compete they change the landscape, your 19th century smarts might not be useful in the 20th century. It's said the Charlie Chaplin never made it in the talkies and he envied actors who could speak. It is complex!

I just don't think there is a simple connect the dots method of determining the future. As the saying goes YMMV! ;)

Denny Schlesinger
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No. of Recommendations: 0
Hi Dave and others that see WFH has good productivity right now.

Most departments, entire teams and companies are WFH. What happens when 100% changes to 30-60% of those teams and meetings are with remote employees. How will we manage the split of who is on site and attending virtually? The type of interaction is very different going forward..


we already do that, and for the most part it works well. there are times when we have to have people move closer to the microphone, but we have a blend already (note, we were used to this already when we would send people out to remote locations for launches).

Some of us will adapt and work with it, there will be old school people that like to have everyone there, but even my upper management is warming to having more remote people than before, and as the younger managers move up, I suspect they will be even more open to it.

then again, I could be wrong, this is just one instance and I am notoriously bad at predicting the future (my wife will tell you I am definitely not good at that, and she is right)
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No. of Recommendations: 41
- education (universities, schools) will go back to in-person teaching mostly

This is true is some cases.

I’d like to highlight something a friend of mine recently told me about. He’s a professor at a major university and is basically head of committee for Covid planning for the learning.

Zoom is permanent. Every aspect of teaching at the university is geared towards production through video. They have hired several former movie and show producers and effects specialist and when a professor gives a lecture effects and charts and graphs, whatever they need for the moment pop up.

The live lectures have students and a professor and is cast to thousands more via distance learning. The live students see the production version in hall rather than really watching the professor.

Their university has insane numbers of distance learning this year (and an at capacity campus) providing the University with an unimaginable global reach and a cascade of tuition revenue. They had a distance learning program before but nothing like this.

Many companies/industries learned to cope by integrating video into daily activities. Many more learned to thrive with the tools they hadn’t considered before and aren’t going anywhere.

Darth
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No. of Recommendations: 11
Most departments, entire teams and companies are WFH. What happens when 100% changes to 30-60% of those teams and meetings are with remote employees. How will we manage the split of who is on site and attending virtually? The type of interaction is very different going forward.

Even before covid, when my employer switched to Zoom, people tended to dial in to meetings from their desk. So we'd have a mix of people dialing in from home, from their desks, and sometimes a few from a meeting room.

I even used to conduct Agile stand-ups via Zoom. For a 15-minute standup you don't want people to be late and it's easy just to instant message them a reminder.

Another problem in some companies is the lack of large meeting rooms with VC screens. Dialing in from your desk solves this.

Zoom just makes meetings so much easier.
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No. of Recommendations: 6
Relatively low penetration in corporate customers exactly is one of the big business opportunities and growth drivers moving into the future in my eyes.

Zoom will have to be a big enough improvement over Teams' "good enough" experience to motivate the corporations to switch.

My employer (large multinational tech) uses Office and Microsoft cloud services now. Our video meetings have been Teams, Skype and Webex. Webex seems to be on its way out. The video and audio meetings are almost all on Teams now. We still use Skype for "hey, quick question" text and audio chats. Teams is integrated with Microsoft's cloud based Sharepoint (place to store documents and videos that your whole team uses) and we have evolved our meetings to take advantage.

Teams isn't perfect, but it is usually good enough. Not necessarily real intuitive to use, but once you learn where things are, it works. When everyone else uses it, a new user is motivated to learn. We already used Office and Microsoft's cloud services when we rolled out Teams. It integrates well enough.

Zoom would have to be THAT much better, and competitively priced, to get the company to change. Many of our people use Zoom off hours for family connections, churches, etc.
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No. of Recommendations: 10
I agree with the post above. What folks don't realize here is that Teams is free for those companies that subscribe to Office 365 (which is pretty much every company). We recently held a call with 130 participants on Teams and it was flawless. There is literally zero incentive for our company to switch to Zoom and pay a monthly subscription.

I am slowly unloading my Zoom stock because:

1) As mentioned here, every company has a video conferencing tool by now. Yes they can continue to expand by adding users or taking market share, but expanding TAM will be difficult from here.
2) How can they continue to differentiate from competitors and demand a premium price? It's unclear to me. You can only do so much with a videoconferencing cool.
3) Growth next year will probably slow down to 30% and worst case, the multiple might come down from 40 times revenue to 20 times revenue.

For some reason I no longer feel comfortable to hold a significant stake in Zoom. I don't have this feeling with DDOG, CRWD, OKTA, COUP, DOCU and other stocks discussed here..
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Rubenslash,

Can one use teams on an iPhone (or other smart phone) or tablet?

Thanks
Gordon
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@Etagordon: Yes, they have an app. I have been using this to dial in.
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Yes. I use the teams app on my devices daily.
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Can one use teams on an iPhone (or other smart phone) or tablet?

There is a Teams app in the Apple "App Store". So the answer is yes.
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No. of Recommendations: 16
What folks don't realize here is that Teams is free for those companies that subscribe to Office 365 (which is pretty much every company). We recently held a call with 130 participants on Teams and it was flawless. There is literally zero incentive for our company to switch to Zoom and pay a monthly subscription.

Teams has always been free correct? How did Zoom ever get any business?

Just because your company has no incentive to switch does not mean other companies do not either. Also, Zoom does not need to have every company in the world as a customer to be successful.

Brian
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No. of Recommendations: 6
I posted below few days ago:
https://boards.fool.com/ibuildthings-upon-further-digging-i-...

- Though Zoom and Microsoft Teams hold the deepest user penetration of collaboration platforms in the U.S., it is notable that there is room for many apps to co-exist in this space. In May 2020, 40% of Microsoft Teams users also used Zoom.us. This is likely because both platforms provide a distinct user experience leading to heavy cross-over between the two platforms.

In fact, my company uses Teams for internal ad hoc collaboration (mostly by IT and Finance), Webex for internal and external scheduled meetings and zoom for patient virtual visits and student virtual classes. We are healthcare, research and educational institute. Teams appears to work well but multiple tools are common within enterprise customers and ours is one such example. We likely are going to get rid of webex in 2021 and have Teams for all except student and Patient population (where Zoom is preferred choice, free won't cut the deal here. Ease of use trumps in this case).

Thanks,
-Raj
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ibuildthings,


Zoom will have to be a big enough improvement over Teams' "good enough" experience to motivate the corporations to switch.

My employer (large multinational tech) uses Office and Microsoft cloud services now. Our video meetings have been Teams, Skype and Webex. Webex seems to be on its way out. The video and audio meetings are almost all on Teams now. We still use Skype for "hey, quick question" text and audio chats. Teams is integrated with Microsoft's cloud based Sharepoint (place to store documents and videos that your whole team uses) and we have evolved our meetings to take advantage.

Teams isn't perfect, but it is usually good enough. Not necessarily real intuitive to use, but once you learn where things are, it works. When everyone else uses it, a new user is motivated to learn. We already used Office and Microsoft's cloud services when we rolled out Teams. It integrates well enough.

Zoom would have to be THAT much better, and competitively priced, to get the company to change. Many of our people use Zoom off hours for family connections, churches, etc.


This is true, at my small business which has less than 100 people we don't need the ability to hold 200 people conferences, Teams is free with Office 365. I believe most businesses don't need that ability as well.

Schools and government may not need an entire office 365 package and because ZM is sold
"à la carte" it is a prudent purchase without 'extras'.

Looking at their spend sequentially and where R&D is flat does stick out, investments should be made now for the next several years. As per Conf. call they would like R&D to be higher, so I'm wondering what are they waiting for.

(Thousands)
Q1 Q2 Q3
2020 R&D $26,389 $42,734 $42,582
2019 R&D $13,783 $15,054 $17,573

2020 S&M $121,556 $159,173 $190,157
2019 S&M $64,041 $79,652 $96,048

2020 G&A $53,130 $81,238 $93,488
2019 G&A $18,503 $20,955 $23,806


Seq. Spend Change from Q2 to Q3 2020
R&D -0.36%
S&M +19.47%
G&A +15.08%

Seq. Revenue Change from Q2 to Q3 2020
$663,520 -> $777,196 +17.13%
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No. of Recommendations: 2
TexasTitan,

One largely untapped market is customer support. When all calls and chat and txts are done on the zoom platform. It could be technical support, where I share my screen with my app provider so they can debug a problem. It could be my bank, my insurance company explaining the EOB or why my rates went up. It could be instatcart asking if I'll substitute whole milk for 2%, or asking me if the broccoli is acceptable.

A customer support team in an enterprise occupies many seats, and that multiplied by all the consumers is a big number. (No all the consumers won't be paying customers of zoom initially, but they'll become demanding users of it. Network effect.)

rgds,
Bill
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No. of Recommendations: 37
I agree with Dave.

As a former tenured professor at several major universities, a few observations are in order:

1) Many on this board would NOT recognize what is going on in universities today. Trust me.

2) In-class classes are increasingly expensive for the university (expensive, tenured faculty member and relatively small classes). Forget what you thought about tuition, and student/faculty interaction at major universities.

3) Technology has been used for years to counterbalance this. (see Dave's comments)

4) Distance "learning" has become BIG business on the college campus. In fact, many universities have become completely dependent on it during the last 2 decades.... for without the large numbers of online students, many campus programs could not be sustained. Further, many of these classes are delivered by inexpensive adjunct faculty.

5) I first starting looking seriously at ZM soon after it became public last summer. My 1st investment was days after the IPO. Why? Several former colleagues were talking about their ZOOM rooms and how much better they were than WebEx. Many.... not all... universities are somewhat laggards in their adoption of new technologies. But to appeal to the large numbers of online students, investments must be made.

6) Higher education is a HUGE market, and it is not going away. WFH or BTN. The revenue from these distance learning programs has become addictive. I predict ZOOM will benefit handsomely.

But then, it's just my opinion.

breezyday
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My apologies.

I was replying to Darth.
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No. of Recommendations: 12
People think of business travel as airplanes. There is just so much more business travel happening in city streets. My wife has a small business with three employees. Even though she has three employees she works with a network of hundreds. Before the pandemic, she would spend hours each day inside of an Uber going from one meeting to the next. She is so much more productive now that she doesn't have to travel across the city anymore to meet with people. She doesn't see herself ever going back to that.
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No. of Recommendations: 48
@TexasTitan, I've been in Tech for my entire career. About 4 years ago my company opened a satellite office closer to where I live, and I started working from the satellite office 2 days/week, and HQ 3 days/week. Within 1 year I went to 2/wk in satellite, 2/wk at HQ, and 1/wk from home. After 2 years the company expanded our HQ, closed the satellite office, and I went to 3/wk at HQ and 2/wk at home. We ran out of space again quickly, and the company acquired more space at HQ and started the renovation, but then 6 months before completion Covid hit, and the entire company went into WFH mode.

But, even before COVID we always had on and offshore teams, and always had multiple office locations, with engineers in the field or working from home or from consulting offices. Hence, even before COVID, everyone at the company was accustomed to using Google Hangouts for all meetings, Google chat to communicate with the team, even when we were sitting directly across from each other just 4 feet apart. The transition to WFH was nothing new to anyone in the company. The only exception were the sales teams, who were accustomed to making office visits with clients, and going to numerous conventions in every state. Ironically, we have been closing more business since COVID then before COVID, and our sales reps are spending way less money and have been able to reach prospects very effectively.

What our company has realized is we are more productive than ever before. I think it is mostly because people work longer hours since they don't commute, and they don't take long lunches or long breaks, and most have fewer disruptions (except those with kids at home).

Last month at our company meeting the WFH topic came up and the leadership discussed it openly with the entire company. There was also a survey sent out to gauge employee satisfaction re: WFH, and whether staff prefers to work in the office. The full survey results are still pending, but it is clear we are not going back to full time office work. The CEO basically didn't want all the newly renovated space to go unused, but he committed that when COVID is done most of us will have the option to continue WFH or blended, depending on the role. Since most of the company are SW engineers, he anticipates 75% will WFH indefinitely.

With that context, I have spoken to several friends in the software industry, and some in other verticals, and most are very accepting of WFH. So the new era of remote working has come and will stay with us. Just this week I had job offer and right up front they company made it clear it would be 100% WFH, even though I would be leading a team of 50+. It's just the new normal.
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No. of Recommendations: 30
I realize that P/E is a somewhat antiquated metric for us :-), but I don’t think we’re far off from looking at ZM on a P/E basis. Look at the profitability...

Net margin expanded from 30% to 38% sequentially, and while they stated they expect R&D to ramp, that should be offset somewhat by S&M reduction. A 50% net margin (CRM territory), seems base case now, and not far away.

TTM P/E at close yesterday: 373 ($1.28 total EPS Q3 FY20 through Q2 FY21, $478 stock price)

TTM P/E at close today: 172 ($2.26 total EPS Q4 FY20 through Q3 FY21, $406 stock price)

Fwd P/E (worst case): 93
Fwd P/E (base case): 75
Fwd P/E (bull case): 62

Worst case: assumes Q4 revenue meets forecast, annualized ($811 x 4) net margin static (38%)

Base Case: Q4 revenue beats by 10%, expands by 5% over each of next three qtrs. Net margin expands 100bp per qtr, averaging 40%.

Bull Case: Q4 revenue beats by 10%, grows sequentially by 10% over each of next three quarters. Net margin expands 300bp per qtr, averaging 44%.

A lot of assumptions, obviously. My point though is that ZM was, and really always has, been in the fortunate position of being profitable, and soon will be massively so. This, I believe, puts a real floor on the sales multiple, and also gives them a fast-growing cash hoard for strategic acquisitions.

As I reread what I wrote above, even the bull case—-given what we saw in sequential comps against the prior COVID quarter, the massive growth in stickier enterprise customers, and the insane international growth——seems totally reasonable.

Eric
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No. of Recommendations: 30
Couple points I'd like to highlight from this thread.

1. K-12 schools aren't paying to use Zoom.
Kids returning to the classroom benefits Zoom's profit margins.

2. People seem to think Zoom is usage based. It's not.

I agree with everyone saying hybrid WFH will be the norm.
When workers at colleges, businesses and government entities go from 100% via Zoom to 25- 50%, the organization will still keep the subscription.

WFH will also be a lot easier when kids are back to school.

3. International at 31% of the business is growing at 629%. That EMEA only grew 5% means there's still tremendous opportunity.

4. Saul is correct. +301 new customers over $100k or +30% for the quarter is impressive.
Enterprise at 18% of revenue means this is another huge channel of opportunity.

I agree with LearningInvestor.

Relatively low penetration in corporate customers is exactly one of the big business opportunities and growth drivers moving into the future in my eyes.

6. Bill makes an excellent point about customer support.

One largely untapped market is customer support. When all calls and chat and txts are done on the zoom platform. It could be technical support, where I share my screen with my app provider so they can debug a problem. It could be my bank, my insurance company explaining the EOB or why my rates went up. It could be instatcart asking if I'll substitute whole milk for 2%, or asking me if the broccoli is acceptable.

Last year I had an issue with my company's GoDaddy website. the issue turned out to be within my Macbook pro.
GoDaddy tech support, using Zoom's technology, took control of my computer and fixed the problems in minutes.
I've shared screen via Apple support multiple times.
The GoDaddy via Zoom experience was quick and so much faster and more efficient than if I stumbled around following the tech's directions.

7. The $72 price drop today hurts. Have to remind myself that's where it was two weeks ago.
Was hoping for a large pop, so I could trim my outsized position. Will be holding now.

I anticipate the reality of the overwhelming positive numbers from the conference call will start to seep into the consciousness of the market,
and over the next couple months Zoom will make a steady push upward in price.
That's my hope at least.
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Great discussion here on ZM and the #s from yesterday look very positive to me.

I'm long ZM. I think they are still early and have a lot more to offer - and become an environment and true communications platform globally.

That all being said, what do you all believe caused the -15% drop today after such earnings?

Simply analyst beliefs around valuation?

Overall market rotation...or something else?

I'm used to volatility with the companies we are in... but -15% is a big drop (in my experience) when such positive earnings come out.

Thanks!
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No. of Recommendations: 6
Fwd P/E (worst case): 93
Fwd P/E (base case): 75
Fwd P/E (bull case): 62
-- Eric

Your post was the most valuable one I've seen for a while (for me). I don't want to get into any argument as to which metric is best, but..... ultimately.... when growth settles down..... companies are frequently judged on PE. And you've made a compelling point that even on a conservative basis (PE), ZM is quite reasonably priced. Probably cheap. Thanks!

Rob
Rule Breaker Home Fool & STMP/MTH Maintenance Coverage Fool
He is no fool who gives what he cannot keep to gain what he cannot lose.
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No. of Recommendations: 69
That all being said, what do you all believe caused the -15% drop today after such earnings?

More sellers than buyers!

From Jim Cramer:

First, I hate to break it to people, but Zoom had amazing numbers. Did they obliterate the estimates? Yes. Did they furiously raised their forecast? Completely. Did they reveal giant contracts that they stole from big enterprises? No. That led to a theory that its gross margins aren't as special as they once were because they are handling lots of free smaller clients instead of going after elephants. Given how expensive the stock was, it could have been due for a fall. Darned stock is still up 500%. I just don't think you can draw a conclusion that the work from home stay at home thesis has been destroyed by a company that has more business than it can deal with even as that business isn't quite as lucrative.

https://realmoney.thestreet.com/jim-cramer/jim-cramer-a-grea...

Upthread LearningInvestor wrote, "Relatively low penetration in corporate customers exactly is one of the big business opportunities and growth drivers moving into the future in my eyes."

Remember what happened to Fastly when they lost their top 12% customer? The focus on big customers is not always a blessing, Apple is doing quite well and most of their products are consumer electronics. For me an extensive consumer base is a positive development.

Cramer also said "Given how expensive the stock was, it could have been due for a fall. Darned stock is still up 500%." In pictures:

https://softwaretimes.com/pics/zm-12-02-2020.gif

Anchoring is a bad idea. Fifty percent down is quite common for fast growth stocks and it has to be looked at in context. If you ignore the September-October peak, ZM is growing at a steady pace. Don't forget that at the October peak Saul, myself, and others here took profits. So did many others and that created the top. This is normal for markets. Saul doesn't like baggers but Y/Y ZM is almost a SIX bagger in one year $68.93 --> $406.31. This is simply unreal.


That all being said, what do you all believe caused the -15% drop today after such earnings?

Don't try to find simple "if A then B" type answers to the complex meanderings of stock prices, that's not how the markets works. Look at the big pictures -- plural -- business model, earnings, stock charts, etc., etc.

Denny Schlesinger


TSLA did better $66.97 --> $584.76, an 8.7 bagger. Elon Musk is catching up with Jeff Bezos.

ZM dropped to second place in my portfolio, just behind FSLY.
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That all being said, what do you all believe caused the -15% drop today after such earnings?

More sellers than buyers!


I think we've seen this repeatedly. There is a cadre of traders who push the price of a high growth stock up just prior to an earnings release and then sell upon the news whatever it is. I think this was a major contributor to the 15% drop post the earnings announcement. Everything else in my portfolio fell about 5% on the same day which is a very normal fluctuation. The fluctuation in ZM, which is up 432% in the last 12mo (according to a Schwab bulletin) strikes me also as normal or at least to be expected. ZM is down 11% over the past 3 months.. also normal

cheers

arnie.
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No. of Recommendations: 50
*Relatively low penetration in corporate customers is exactly one of the big business opportunities and growth drivers moving into the future in my eyes.*

An entire generation is being trained on Zoom right now at school. Last weekend my 6 year old and her friend Zoomed because they missed each other. They spent the entire time changing who the host was so they could play a game drawing on the whiteboard. They learned this at school. My kids also Zoom with their friends while playing Roblox together.

My question is, what is an entire generation being trained on a product worth? Some seem to think this is not worth anything as it does not show up on the balance sheet. Some seem to think it's actually a negative because it is causing the margins to shrink. These students will eventually join the workforce. Will they accept a lower quality product than Zoom when they get there?
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I appreciate the insights from everyone and JTMatrix9 your email as well.

Many of you helped to confirm that a 15% drop isn't unusual and doesn't always have a logical reason to occur.

I'm long ZM as mentioned and in fact bought a bit more yesterday when it dropped at about -11%.

Thank you all for continuing to share not only the technical details about our high growth companies but also the mindset that we should embrace to be long-term successful investors with these game-changing companies.
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No. of Recommendations: 7
An entire generation is being trained on Zoom right now at school. ... These students will eventually join the workforce. Will they accept a lower quality product than Zoom when they get there?

Apple did the same thing with heavy student discount pricing and laptop/desktop placement in schools. Yet Microsoft stayed dominant, as it might with Teams for corporations. The people buying at many corporations don't care about better, just good enough when a bundle deal is to be had.

It took revolutionary products like iPod, iPhone, and iPad for Apple to take off. Student pricing barely registered on their bottom line, in my view anyway.
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Smorgasbord,
I agree with your caution. However, I was in school during that time period. I don't remember what kind of computers schools used. The computers were in the computer lab, not the Apple lab. I remember learning MS Word, Excel, and PowerPoint. This was an essential skill for all jobs I was looking for when I left school. I would say this was more of an advantage for Microsoft than Apple.
Will being proficient in Zoom be like being proficient in Excel to employers? If Zoom can continue to innovate faster than Microsoft, this could be a reality. If I was hiring now, I would want any new hire to be proficient in the best video conferencing tool. College students are probably doing group projects and presenting in class on Zoom. They are proficient.
Of course, this is not reality yet. It may never register on their bottom line.
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No. of Recommendations: 8
If I was hiring now, I would want any new hire to be proficient in the best video conferencing tool.

This isn't a thing. If you're a regular consumer, you just download the app and start, click or tap a couple of buttons and you're done. If you're in a company where Zoom is installed for you, you just click it and go. If it was any harder that, Zoom wouldn't have turned into a verb overnight; I daresay anybody who has trouble with that is barely able to use their phone to make a call ;-)

Software proficiency is sticky in only a few cases, and Microsoft has the majority of that sewn up.

The moat here can look like a fragile thing, a combination of ease of use (both for the consumer and IT departments who manage it), pricing, a robust user base that attracts more users, and performance...in short, execution. If it were easy to do, Skype would have owned the space already, since they were one of the first; or Webex or Teams would make it impossible for a small player to squeak onto the field. But execution is NOT easy, even if sometimes the right team can make it look that way.
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No. of Recommendations: 3
If I was hiring now, I would want any new hire to be proficient in the best video conferencing tool.

The point about Zoom is that you don't need proficiency to use it. It just works. The point about former students who have used it extensively coming in to the workplace is that they will know how much better it is possible to be.
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The computers were in the computer lab, not the Apple lab. I remember learning MS Word, Excel, and PowerPoint. This was an essential skill for all jobs I was looking for when I left school.

This isn't what I'm talking about, and as others have pointed out, there is no real Zoom skill.

Even for Apple, it wasn't about getting skills using Macs, it was about exposing people to the better solution, so when it's their turn, they won't follow the lemmings off the cliff and buy Apple instead (intentional Apple TV ad metaphor). Zoom may be trying to expose people to their better solution so they'll buy it instead of the others later.

As I said, it's fine but doesn't really move the needle appreciably.
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Hi Eric,

I agree that folks should start looking at Zoom on a P/E basis.

Could you clarify where you got your margin percentages?

I see a 37.4% non-GAAP operating margin for the third quarter, which is up from Q3 last year of 12.8%, but down from Q2 FY21’s margin of 41.7%. (Due to Zoom ramping up spend).

Also, I am wondering how you are getting to 50% margins in the future. At Zoomtopia, Zoom's CFO Steckelberg guided for long run non-Gaap operating margins of 25%.

(Are you just assuming that at some point they'll be able to shave percentage points off of S&M and G&A as they scale?)

-Purplemist
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