For Zoom, ‘All Good Things Must Come to an End’

Zoom fourth-quarter earnings include a nearly 370% increase in revenue and more than $260 million in profit compared to the same quarter in 2019, but competition is growing too.

Total revenue for the quarter was $882.5 million. Profit skyrocketed from $15.3 million for the year-ago quarter. That was before the COVID-19 pandemic and the massive increase in video conferencing.

Eric Yuan is Zoom‘s founder and CEO.

Zoom’s Eric Yuan

“The fourth quarter marked a strong finish to an unprecedented year for Zoom,” he said. “In [fiscal year] 2021, we significantly scaled our business to provide critical communications and collaboration services to our customers and the global community in response to the pandemic. Our ability to rapidly respond and execute drove strong financial results throughout the year. As we enter FY 2022, we believe we are well-positioned for strong growth with our innovative video communications platform, on which our customers can build, run and grow their businesses; our globally recognized brand and a team ever focused on delivering happiness to our customers.”

‘Amazing Year,’ But End Coming

Trevor White is an analyst at Nucleus Research. He said Zoom had an “amazing year.” However, among many factors, competition means “all good things must come to an end.”

Nucleus Research’s Trevor White

“The fundamental problem remains, however,” he said. “Zoom is not going to be able to keep up with the growth that it has seen. And furthermore, there is likely to be a contraction in its sub-10-employee customers. There are too many freemium and lower-cost options from competitors like Google. And we are hearing, particularly from smaller customers, that they are more than willing to switch now that they aren’t using Zoom out of necessity. However, I don’t think that the slowdown is going to wipe off major bits of Zoom’s business, as the transition will be gradual and the hybrid remote work model is still popular among knowledge workers.”

At the end of the quarter, Zoom had:

• More than 467,000 customers with more than 10 employees. That’s up about 470% from the year-ago quarter.
• More than 1,640 customers contributing more than $100,000 in trailing 12 months revenue, up more than 150% from the year-ago quarter.
• A trailing 12-month net dollar expansion rate in customers with more than 10 employees above 130% for the 11th consecutive quarter.

Impressive Stats

“It was impressive to see Zoom’s growth in greater-than-10-employee customers, an increase of almost 200,000 users since the summer,” White said. “This represents a much more stable customer base, at least in the short term while their contracts hold. Larger customers often suffer from inertia, and Zoom will benefit from providing a familiar interface. The threat here is that most customers we speak to are regularly familiar with at least two to three video conferencing solutions, which means that these larger organizations would be capable of transitioning to a competitor.”

Bobby Beckmann is Lifesize‘s CTO. He said around this time last year, organizations scrambled to make remote work possible.

Lifesize’s Bobby Beckmann

“A year later, those same organizations have moved beyond using any video solution available to redefining their future of work, and revenue generation using sophisticated communication strategies and collaboration tools,” he said. “Technology providers and partners in the space are playing an impactful role in feeding this change and growth.”

As the world gradually returns to the in-person workplace, the video conferencing industry will continue to play an important role in the future of work, Beckmann said.

“Very few organizations will have the entirety of their workforce return to the office, meaning that implementing video solutions that accommodate both in-person and remote employees equally will be a top priority for business leaders,” he said. “We’re also seeing companies move beyond video alone to keep employees engaged. In a hybrid model, outfitting personalized or interactive meeting rooms with digital whiteboards and brainstorming tools for employees who are both in the office and at home are ways to further foster an inclusive, collaborative environment.”