Zoom Again Blows Through Expectations

Much as it did for the first quarter, no-moat Zoom (ZOOM) crushed its second-quarter results and once again substantially raised full year revenue guidance. While it was virtually impossible to top last quarter’s once-in-a-generation results, Zoom delivered a tremendous encore. The video-first communications platform company continues to penetrate the market by leveraging its cloud-based solutions’ ease of use and innovative features. We see a long runway for growth as the company gains traction with its Zoom Phones solutions as well, and we are impressed by management’s ability to over deliver in terms of both growth and margins. We struggled with guidance that we think is conservative in the face of two straight unbelievable quarters, but we certainly sympathize with management’s guard rails of macro uncertainty and unprecedented new business wins that have signed on as month to month users. Ultimately we are significantly raising our estimates, which drives our fair value estimate to $153 per share from $116. We still cannot support the current share price within our discounted cash flow model.

Revenue grew 355% year over year to $664 million, which blew past the high end of guidance of $500 million and well ahead of our slightly higher than CapIQ consensus estimate of $502 million. Demand for Zoom’s products remains robust as the company continues to gather new customers, which are contributing more to revenue growth than existing customers are--unusual for a software company of Zoom’s size. Customers with more than $100,000 in trailing annual revenues grew 112% year over year to 988. Clearly larger customers added meaningfully to their seat count, but small customers contributed 36% of revenue, up from around 20% over the last couple years, and an already elevated level of 30% last quarter. As the world opens back up from COVID-19 in the back half of the year, management expects churn to be elevated from its 4% monthly historical norm.