Blogs -Zoom Discusses Two Important Catalysts In Q1 Earnings

Zoom Discusses Two Important Catalysts In Q1 Earnings


author

Beth Kindig

Lead Tech Analyst

This article was originally published on Forbes on Jun 3, 2021,11:31pm EDT

Zoom has had record-breaking earnings results for four quarters now and the market is growing complacent with this stock. The company has (again) posted the highest growth in the cloud software category with revenue at of $956.24 million, or 191% year-over-year growth. The bottom line is also the best in its category (yet again) with adjusted EPS of $1.32 and free cash flow of $454.2 million – which is nearly double the consensus of $280.4 million.

Meanwhile, we saw very little reward in terms of price action. This could change as there was 19 institutional analysts on the call; a surprisingly high number. Zoom also had the Head of Zoom Phone join the call, Graeme Geddes, who announced there are now 1.5M seats of the Zoom Phone, which means the company added 500K new lines in 5 months. 

As offices reopen, the growth of the Zoom Phone will be particularly important for investors who want to see more than a web conferencing app. As evidenced by Q1, we continue to see great demand for Zoom Phone, which bodes well for Zoom as they begin to face difficult comps in the second half of 2021.     

Geddes also discussed the momentum and accelerating growth the company has observed with Zoom Phone: “At the end of December, we announced reaching 1 million seats of Zoom Phones sold. Well, that momentum continues and I am excited to announce that we have now surpassed 1.5 million seats of Zoom Phones sold as of the end of September. It’s been absolutely amazing to see the growth continue to accelerate.” 

In the Q1 Conference Call, Zoom management announced their new device category, the Zoom Phone Appliance. The head of Zoom Phone & Rooms, Graeme Geddes, discussed the new device category in the company’s conference call:

“Our new Zoom Phone Appliances allow our customers to take advantage of the powerful audio and video capabilities of Zoom and they are a great solution for touchdown spaces, huddle rooms and executive offices alike.”

Founded in 2011, Zoom previously described itself as a leader in modern enterprise video communications. The CEO states that Zoom is enabling greater effectiveness in human-to-human interactions over a distance with use cases that are not possible with legacy systems. The key words here are “not possible with legacy systems.” 

Zoom’s ongoing goal will be to disrupt all legacy systems with cloud-native communications – and this means every possible method of communication that is not currently done on the cloud and/or is currently on the cloud but is too cumbersome of a process due to walled gardens.

According to Gartner, by 2022, 65% of meeting solutions users will take advantage of SIP/VoIP-based audio-conferencing tools. This is up from 20% in 2017, while 40% of meetings will be facilitated by virtual concierges and advanced analytics. This means prior to Covid, audio-conferencing was predicted to grow substantially.

International Growth

After growing rapidly in the United States, Zoom is now eyeing international expansion as the key to sustaining its trajectory. According to the most recent earnings results, Zoom has been making strategic investments to improve its international presence, which paid off in the Q1 results. The company’s combined APAC and EMEA revenue grew 288% YoY to approximately 34% of revenue, up from 25% a year ago. 

Here is what the CEO said on the call:

Number two is really about the international market expansion. There is a huge opportunity. From 25% to more than 30%, I think we do see a lot of opportunities from other, EMEA, APAC, Japan, a lot of opportunities, right. 

The company has indicated that international channels are about a year behind the United States:

“And then in terms of international expansion, specifically around the channel, this is a really great question. We had a discussion about that in the last couple of weeks. So, the team has done a really good job in focusing on our U.S. channel strategy, especially around Zoom Phone and building out our master agent program and we are now working on building that out internationally. It’s probably guessing, but we are probably where we were in the U.S. a year ago or so. So, it’s probably about a year behind in terms of our international channel strategy.”

Zoom’s Consensus Raised 3 Times This Year:

At the start of this year, the consensus on Zoom was for 19% year-over-year revenue growth. We have only seen Q1 earnings, thus far, and the company is now expecting 50% YoY growth.

https://images.prismic.io/bethtechnology/098667f8-69bd-424d-8bd9-cd01d9a79069_1.png?auto=compress,format

Chart: David Marlin

We’ve emphasized Zoom’s exceptional financials in previous analysis at IPO, in the first month of Covid and prior to this earnings report. In September of 2019, we also stated the company has a viral mechanic prior to the product going viral from shelter-in-place. That’s important to understand because the growth Zoom is reporting is inherent to the product, not due to the one-time event of Covid.

We discussed this in-depth in our analysis on Zoom Video here:

Competitors such as Cisco Webex, Microsoft Skype and LogMeIn require bulky user accounts, downloaded applications and software, which restricts the one-to-many model. Technically, Google Hangouts also wants you to be logged into a Gmail account. This doesn’t work for enterprise teams on Microsoft Outlook. Corporate teams are also increasingly mobile, switch between devices, and need to join meetings very quickly. 

Again, joining a video conference without downloading an application or software may seem minor but it’s actually a driving force in adoption and virality. This micro improvement has an effect on the speed at which Zoom’s conference URLs are shared from one-to-many users.”

There is a saying from John Maynard Keynes that “the markets can remain irrational longer than you can remain solvent.” In this case, I don’t think the market can remain irrational long enough to outlast Zoom’s strong product growth. If Zoom keeps putting up impressive numbers on the scoreboard then the market’s “efficiency” will eventually relent.

Loading...

More To Explore

Newsletter

Microsoft stock up as Azure tops AWS, Google Cloud in Q3 2025

Microsoft Stock Surges After Q3 2025 Earnings: What Separates Azure from AWS, Google Cloud

Microsoft stock jumped after Q3 2025 earnings as Azure emerged as the only major cloud platform to accelerate growth this quarter — a rare feat amid macro pressures. Azure’s 35% constant currency grow

May 16, 2025
Bitcoin price chart signaling potential top despite favorable crypto news

Why Bitcoin’s Bull Run May Be Nearing a Top Despite Pro-Crypto Tailwinds

Since calling the Bitcoin bottom near $16,000 in late 2022, the I/O Fund has maintained a disciplined, contrarian approach — issuing 13 buy alerts before Bitcoin surged above $100,000. Now, signs sugg

May 09, 2025
S&P 500 hits key 2025 target as bond market and consumer trends signal rising volatility and shifting stock-bond correlation.

2025 Market Outlook: Why Stocks and Bonds Are Signaling More Volatility

As the S&P 500 reaches a key bounce target, troubling signs in bonds and consumer behavior suggest this market rally may be on thin ice. I/O Fund’s Knox Ridley explains why volatility may intensify an

May 02, 2025
Illustration of an investor holding an umbrella, shielding from stock market volatility.

The Impact of Tariffs on the Stock Market: Q1 Preview

Rising tariffs are injecting significant uncertainty into the stock market, triggering daily volatility and forcing analysts to revise earnings estimates. Our Q1 preview dives into the potential impac

April 25, 2025
Aerial view of Tesla's new Model Y Juniper parked in lines. Courtesy of Tesla, Inc.

Tesla Stock Faces Recalibration of Growth Expectations

Tesla’s stock is now facing a recalibration of expectations after Q1’s delivery report missed by a wide margin. Q1’s analyst consensus has gone from $25.98B at the start of the year to $23.97B in earl

April 17, 2025
an illustration of a government building, constrained by heavy chains, with a volatile stock chart displayed above.

The Fed Can’t Save This One: Why Bonds May Break the Stock Market in 2025

In early 2025, as markets rallied to new highs, we warned that divergence across key sectors signaled a looming correction. Now, with all major indexes in a technical bear market and bond market dysfu

April 11, 2025
Silhouette illustration of Larry Ellison, Oracle's CTO and executive chairman.

Oracle Stock Outlook: Revenue Could Double by FY2029, yet Targets Seem Lofty

Late in 2024, Oracle outlined an ambitious plan to nearly double its revenue by fiscal 2029, hinging on long-term growth in enterprise AI and cloud spending. Oracle sets itself apart from its hypersca

April 04, 2025
Graphic showing I/O Fund's "210% Cumulative Returns" with financial charts and a world map in the background.

I/O Fund Reports 210% Cumulative Return -- Ranking Above Wall Street's Best

In 2024, I/O Fund posted a 35% return, significantly outperforming popular tech ETFs, which recorded an 8% return over the same period. On a cumulative basis, the results translate to a remarkable 219

March 31, 2025
Illustration of an investor burdened by the weight of market downturn

The Harsh Truth: Retail Investors Take the Brunt of Market Losses

Retail investors face significant disadvantages in the stock market, often underperforming institutional investors by a wide margin. Studies show that high-frequency trading firms dominate market acti

March 28, 2025
Illustration of a futuristic AI data center featuring NVIDIA’s GB200 Superchip

NVIDIA’s GB200s for up to 27 Trillion Parameter Models: Scaling Next-Gen AI Superclusters

Supercomputers and advanced AI data centers are driving the AI revolution, enabling breakthroughs in deep learning and large-scale model training. As AI workloads become increasingly complex, next-gen

March 21, 2025
newsletter

Sign up for Analysis on
the Best Tech Stocks

https://bethtechnology.cdn.prismic.io/bethtechnology/e0a8f1ff-95b9-432c-a819-369b491ce051_Logo_Final_Transparent_IOFUND.svg
The I/O Fund specializes in tech growth stocks and offers in-depth research for Premium Members. Investors get access to a transparent portfolio, a forum, webinars, and real-time trade notifications. Sign up for Premium.

We are on social networks


Copyright © 2010 - 2025