Zoom Video (ZM) made its IPO debut in April 2019 but got a bit lost in the shuffle, as it came out at around the same time as several other high-profile IPOs (Lyft, Uber, Pinterest, Levi Strauss). However, this stock is certainly grabbing some headlines this morning after posting an impressive first earnings report as a public company.
Zoom provides a very easy-to-use cloud-based video-conferencing service called Zoom Meetings. It enables face-to-face video communications for thousands of people in a single meeting across different devices and locations. It's great for companies to hold video meetings for employees at different locations and on the road. Employees can access the meetings platform with just their smart phones, so it's very simple to use.
The company has been teetering around profitability, so it was good to see a non-GAAP profit in Q1 (Apr) at $0.03 per share, up from $0.00 in the prior year period. Revenue more than doubled (+103% yr/yr) to $122.0 mln. Both EPS and revenue came in better than expected. The guidance for Q2 (Jul) was also better than expected, especially for revenue.
What stood out to us were the customer metrics: the company logged approx. 58,500 customers with 10+ employees -- that's up 86% yr/yr -- and perhaps even more importantly, Zoom is attracting larger size accounts, as it now has 405 customers billing more than $100K in LTM revenue. That's up 120% yr/yr.
We cannot stress enough the importance for a company to perform well in its first quarter as a public company. Consider that management has been going on roadshows with institutional investors and presumably touting the company's growth prospects. In that context, it's really important to make good on claims and deliver some good numbers right off the bat. Otherwise, investors will question management's competence and/or trustworthiness.
To be honest, our initial thought with Zoom when we first looked at them was more on the negative side, as video conferencing strikes us as a commodity business. However, while other legacy systems do have an add-on video component, Zoom notes that it was built specifically for videoconferencing and for the cloud and for mobile devices.
After looking into it more, we ultimately became more positive on the story. Also, Zoom had some impressive underwriters on its IPO (led by Morgan Stanley, JP Morgan, Goldman Sachs, Credit Suisse). That certainly gives it some credibility. This AprQ report was a great start. Not sure we'd chase the stock up here as it's trading at a price/sales of 38x, but it's worth keeping on the radar.