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I wanted to take a look back at Zoom's revenue for FY 2021 to try to capture how the growth accelerated then slowed through the pandemic.

For the year, Zoom finished by growing revenue 326% from ~ $622 million in 2020 to ~ $2.6 billion in 2021 (they generated 4.26 times more revenue in 2021 than 2020).

To summarize, Q1 and Q2 were out of this world at 74% and 102% QoQ. Q3, released on 30 Nov, and Q4, released on 1 Mar, showed a significant slowdown at 17% and 14% QoQ.

It looked like this:

04 07 10 01
Q1 Q2 Q3 Q4 FULL YEAR
328,167.00 663,520.00 777,196.00 882,485.00 2,651,368.00
YOY growth 169% 355% 367% 369% 326%
Seq growth 74% 102% 17% 14%


Looking at the table, we can see a big change between Q2 and Q3 when the QoQ growth rate went from 102% to 17%. Saul and others saw that slowdown right away. In fact, he said succinctly on 12 December:

https://boards.fool.com/zoom-results-my-thoughts-34688389.as...

Prior to last year, I don't think I would have imagined sequential growth of 74% + 102% + 17% + 14%. It's just not a set of numbers I'm used to seeing. I'm accustomed to seasonality in some companies where lumpy QoQ growth is normal. But with SAAS companies, part of their allure is the lack of seasonality. So for Zoom, this was an outlying set of numbers (which of course was due to the pandemic).

For instance, if we look at Zoom's revenue growth for the three preceding years we see almost no seasonality.

04 07 10 01
Q1 Q2 Q3 Q4 FULL YEAR
2018 26,753.00 32,921.00 40,890.00 50,914.00 151,478.00
Seq growth 23% 24% 25%

2019 60,070.00 74,526.00 90,121.00 105,800.00 330,517.00
YOY growth 125% 126% 120% 108% 118%
Seq growth 18% 24% 21% 17%

2020 121,988.00 145,826.00 166,593.00 188,251.00 622,658.00
YOY growth 103% 96% 85% 78% 88%
Seq growth 13% 20% 14% 13%

Focusing on the the QoQ growth in this table, we can see that, roughly speaking, it falls from 25% to 14% over three years. That's normal since the rate at which all companies grow, eventually declines. We can also see that there doesn't appear to be seasonality. Perhaps Q2 showed some, but overall the growth was steady.

And so, Q3 and Q4 of FY 2021 were on track at 17% and 14%, and we just had two ridiculous quarters prior of 74% and 102% growth.

Zoom's FY 2021 quarters looked like this:

Q1 - Feb, Mar, Apr
Q2 - May, Jun, Jul

Q3 - Aug, Sep, Oct
Q4 - Nov, Dec, Jan (2021)

The bolded months are what I'm going to call "Zoom's Boom", which spanned half of March and April - July. Or said another way, half of Q1 and all of Q2. This is when the phones of their sales department were ringing off the hook as they signed up new customers.

In the US, shutdowns went into effect around 14 March. So for my purposes, I consider that the beginning of Zoom's Boom, and the end to coincide with the end of July because their growth really slowed after that, which I stated above and will show below. "Zoom's Boom" wasn't that cut-and-dry of course, but as a thought experiment we can pretend it was.

To help illustrate how the company accelerated then slowed from one quarter to the next, we can pretend that they also reported weekly.

So for Q1, the company reported revenue of ~ $328 million. That was up 169% YoY compared to ~ $122 million in Q1 of 2020. And it was up 74% QoQ compared to ~ $188 million in the previous quarter.

So I asked myself the question: At what weekly rate was Zoom growing in Q1 2021 compared to Q4 2020 in order to grow 74% more in the quarter?

In other words, I wanted to find the weekly rate at which it compounded based on 13 weeks in the quarter in order to achieve 74% growth QoQ.

Said yet another way: How much more did Zoom grow in Week 1 of Q1 2021, than it did in Week 1 of Q4 2020? And then ask the same question for Weeks 2, 3, 4 and so forth until the 13th week of the quarter.

We noted above that their "boom" began mid-quarter. So for the first half, we can pretend revenue was growing at a historically normal rate, and was on track to finish at around 14% QoQ. But then it grew at a ridiculous rate during the second half as the virus took hold.

Q1 would have looked like this below if they reported weekly. The table looks a little funny, but essentially we want to focus on the "GROWTH RATE" column, which is the weekly rate at which it grew relative to the same week in the previous quarter. And the "INCREMENTAL $" column which is the number of additional dollars per week they earned relative to the same week in the previous quarter. (The decimal places are tedious but necessary to get the precise dollar amounts.)

WEEK # WEEK BEGINNING BEGINNING $ GROWTH RATE INCREMENTAL $ ENDING $ COMMENTS
1 3-Feb-2020 188,251 1.013006% 1,907 190,158 Normal rate
2 10-Feb-2020 190,158 1.013006% 1,926 192,084 until Week 7
3 17-Feb-2020 192,084 1.013006% 1,946 194,030
4 24-Feb-2020 194,030 1.013006% 1,966 195,996
5 2-Mar-2020 195,996 1.013006% 1,985 197,981
6 9-Mar-2020 197,981 1.013006% 2,006 199,987
7 16-Mar-2020 199,987 7.331621% 14,662 214,649 <-- Boom begins
8 23-Mar-2020 214,649 7.331621% 15,737 230,386 They are now
9 30-Mar-2020 230,386 7.331621% 16,891 247,277 taking over the
10 6-Apr-2020 247,277 7.331621% 18,129 265,407 planet
11 13-Apr-2020 265,407 7.331621% 19,459 284,865
12 20-Apr-2020 284,865 7.331621% 20,885 305,751
13 27-Apr-2020 305,751 7.331621% 22,416 328,167

We can see that the WoW rate of growth went from a historic level of about 1%, to over 7%.

For Q2, the company reported revenue of ~ $664 million. That was up 355% YoY compared to ~ $146 million in Q2 2020. And it was up an astonishing 102% QoQ compared to ~ $328 million in the previous quarter.

WoW the growth rates would have looked like this:

WEEK # BEGINNING BEGINNING $ GROWTH RATE INCREMENTAL $ ENDING $ COMMENTS
1 4-May-2020 328,167 5.564995% 18,262 346,429 Boom continues
2 11-May-2020 346,429 5.564995% 19,279 365,708 for the full
3 18-May-2020 365,708 5.564995% 20,352 386,060 quarter
4 25-May-2020 386,060 5.564995% 21,484 407,544
5 1-Jun-2020 407,544 5.564995% 22,680 430,224
6 8-Jun-2020 430,224 5.564995% 23,942 454,166
7 15-Jun-2020 454,166 5.564995% 25,274 479,440
8 22-Jun-2020 479,440 5.564995% 26,681 506,121
9 29-Jun-2020 506,121 5.564995% 28,166 534,287
10 6-Jul-2020 534,287 5.564995% 29,733 564,020
11 13-Jul-2020 564,020 5.564995% 31,388 595,407
12 20-Jul-2020 595,407 5.564995% 33,134 628,542
13 27-Jul-2020 628,542 5.564995% 34,978 663,520

We can see how seemingly small changes in the rate of the growth can have outsized effects. Zoom's historically normal weekly rate of growth was around 1%. But when it went to 7% and 5%, it changed the trajectory significantly.

The boom ostensibly ended in that final week of July, we just didn't know it until 30 Nov when for Q3, the company reported revenue of ~ $777 million in the quarter. That was up 367% YoY compared to ~ $167 million in Q3 2020. And it was only up 17% QoQ compared to ~ $664 million in the previous quarter.

But look we just went from 102% QoQ growth back to 17%. WoW would have looked like this:

WEEK # BEGINNING BEGINNING $ GROWTH RATE INCREMENTAL $ ENDING $ COMMENTS
1 3-Aug-2020 663,520 1.223840% 8,120 671,640 The boom
2 10-Aug-2020 671,640 1.223840% 8,220 679,860 has ended
3 17-Aug-2020 679,860 1.223840% 8,320 688,181
4 24-Aug-2020 688,181 1.223840% 8,422 696,603
5 31-Aug-2020 696,603 1.223840% 8,525 705,128
6 7-Sep-2020 705,128 1.223840% 8,630 713,758
7 14-Sep-2020 713,758 1.223840% 8,735 722,493
8 21-Sep-2020 722,493 1.223840% 8,842 731,335
9 28-Sep-2020 731,335 1.223840% 8,950 740,286
10 5-Oct-2020 740,286 1.223840% 9,060 749,346
11 12-Oct-2020 749,346 1.223840% 9,171 758,516
12 19-Oct-2020 758,516 1.223840% 9,283 767,799
13 26-Oct-2020 767,799 1.223840% 9,397 777,196

The WoW growth went back to around 1%.

And Q4 looked like this.

WEEK # BEGINNING BEGINNING $ GROWTH RATE INCREMENTAL $ ENDING $
1 2-Nov-2020 777,196 0.982092% 7,633 784,829
2 9-Nov-2020 784,829 0.982092% 7,708 792,537
3 16-Nov-2020 792,537 0.982092% 7,783 800,320
4 23-Nov-2020 800,320 0.982092% 7,860 808,180
5 30-Nov-2020 808,180 0.982092% 7,937 816,117
6 7-Dec-2020 816,117 0.982092% 8,015 824,132
7 14-Dec-2020 824,132 0.982092% 8,094 832,226
8 21-Dec-2020 832,226 0.982092% 8,173 840,399
9 28-Dec-2020 840,399 0.982092% 8,253 848,652
10 4-Jan-2021 848,652 0.982092% 8,335 856,987
11 11-Jan-2021 856,987 0.982092% 8,416 865,403
12 18-Jan-2021 865,403 0.982092% 8,499 873,902
13 25-Jan-2021 873,902 0.982092% 8,583 882,485

The WoW is now under 1%.

Anyway, we can see how revenue accelerated then slowed throughout the year.

Zoom reports Q1 results tomorrow, and the first thing I'll look for is what was the QoQ revenue growth rate? Was it close to the historical norm, which would put it somewhere around 14% or 15% (around 75% annualized)? Or will it be something much less? I honestly have no idea, but I'll decide what to do with my remaining 7% allocation when I see the full results.

As I've said before, a lot of investors here intuit this stuff already. I just wrote this out for myself and thought it might be helpful. I hope it makes sense.

One of my main takeaways from 2020, is learning when to ignore the headline YoY growth rate because it can be deceiving. Raving about Zoom's 300%+ YoY growth in Q3 and Q4, was missing how the company was actually growing at the time. (if they had maintained the same rate of growth in Q3 and Q4 as they did in Q2, they would have finished the year with 700%+ YoY growth).

And similarly, when we see Zoom's Q2 2022 (May, June, July) results in 3 months, the YoY will face a tough comp, so again we'll want to look at QoQ and try to guess how that will annualize.

Best,



* As a disclosure, I first bought shares in Zoom in December 2019, and added more to the position throughout 2020. It reached about a 20% allocation, but I trimmed if it went above that threshold. I would have added more, but I was never able to fully wrap my head around how fast it was growing at scale. It was like a roller coaster. After Pfizer announced vaccine news in November, and Zoom released Q3 results on 30 November, the position fell to about a 7% allocation through a combination of me selling, and the stock price declining. I hold about a 7% position today.
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