No-moat Zoom (ZM) continues to blow past investor expectations with significant upside compared to guidance while delivering a better outlook that leaves room for upside over the coming quarters, especially on the margin front, in our opinion. The video-first communications platform company continues to penetrate the market by leveraging its cloud-based solutions’ ease of use and innovative features, such as OnZoom and Zapps, both introduced at Zoomtopia in November of last year. We see a long runway for growth as the company gains traction with Zoom Phone and evolves its main application to a communication platform, and we are impressed by management’s ability to overdeliver in terms of both growth and margins. Given exceptional results, strong guidance, and our annual model roll, we are once again raising our estimates, which drives our fair value estimate to $223 per share from $176. We still view shares as overvalued.
Revenue grew 369% year over year to $882 million, which topped the high end of guidance of $811 million. Demand remains robust as Zoom continues to gather new customers, which continue to contribute more to revenue growth than existing customers are--unusual for a software company of Zoom’s size. Demand remains strong across all verticals and customer sizes, which we think was initially pandemic-driven but is resulting in deeper walled penetration at larger paying customers. Customers with more than $100,000 in trailing annual revenues accelerated meaningfully once again to 156% year-over-year growth to 1,644. Clearly larger customers added meaningfully to their seat count, but small customers contributed 37% of revenue, up from around 20% over the last couple years. As the world opens back up from COVID-19 over the next several quarters, management expects churn to be elevated from its 4% monthly historical norm, but notes that turnover has been better than expected over the last couple quarters and net dollar expansion remains strong.
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