- Zoom is rotating from a video conferencing provider to a full -fledged communication platform.
- But disappointing growth estimates for the year have left Wall Street skeptical about Zoom’s prospects.
- Zoom executives have a hard fight to prove that its growth strategies will work.
It’s been two years since the pandemic brought attention to Zoom’s business and home stay orders have boosted sales at unimaginable amounts. now,
Zoom
is faced with the challenge of convincing investors that its business can continue to grow and prosper even as the world reopens.
Over the past year, Zoom has focused on going from a video conferencing provider to a full -fledged communications platform. The company emphasizes growing businesses such as its cloud phone offering, and is looking to compete in the contact center market. At the same time, it introduces tools to make hybrid work easier and integrate more workflows into its platform.
That strategy was fully demonstrated during the company’s latest earnings call on Monday. “We are in the early stages of this change of work and communication,” said CEO Eric Yuan.
However, after failing in growth estimates for the year, investors are skeptical that Zoom’s strategy will emerge. While its quarterly revenue showed 21% annual growth, the company’s projected revenue and revenue figures for the next quarter and the full year were both lower than analyst estimates.
Furthermore, the number of customers with more than 10 employees declined for the first time in the company’s history. That suggests that not only consumer users have stopped paying for Zoom, but also small businesses are likely to stop using a paid version of Zoom once they get back to offices, says RBC analyst Rishi Jaluria in a note to clients.
“Ultimately, we view the quarter as a bit disappointing overall,” Jaluria said. “While expectations are low, it is frustrating to see guidance below consensus and calling for a major deceleration.”
But Zoom says those metrics are no longer as important and it’s changing the way it reports customer metrics. The company says it eliminates reporting the number of customers more than 10 employees, and instead focuses on the number of enterprise customers it has. CFO Kelly Steckelberg said the metric is more in line “with the way our internal business outlook has evolved following this period of unprecedented growth and expansion.”
Business customers are defined as “unique business units that interact with either Zoom’s direct sales team, channel partners, or independent software vendor partners.” Small businesses or individual users who signed up for Zoom through its website are now accounted for in its online business.
Overall, analysts viewed that change as a positive, with analysts at JP Morgan writing in a note to clients that “We believe management has done a great job of resetting expectations. for Online “business.
Zoom executives also talked about their approach to the platform, especially with the company’s new contact center product. Zoom will use the same approach it used to grow Zoom Phone, which now has more than 2.5 million users just three years after launch, Yuan said.
“In the first year, sure, right, we’ll target customers who really want to standardize on the Zoom platform,” Yuan said. “For customers who deploy Meeting and Phone, they now look at the contact center.”
On the analyst’s call, however, some questioned whether Zoom could really compete in an established market. One analyst questioned whether the low price for Zoom’s contact center service reflects the fact that it is not yet able to compete with existing products in terms of what the product can do.
Execs argued that the approach is in line with how Zoom always approaches new products and markets: offering a better product at a lower price.
“Zoom is always disruptive to pricing and the contact center is completely no different,” Steckelberg said.
Given the success of Zoom Phone, some analysts are confident that the strategy will pay off a second time. In addition, software veteran and ServiceNow CEO Bill McDermott joins Zoom’s board, bringing expertise as Zoom looks to build its platform.
“With a platform of development and continued business strength, we remain positive on long -term growth opportunities and profitability,” Baird analyst Will Power said in a note to clients.
He’s just not that optimistic anyway. RBC’s Jaluria said Zoom technology will be critical to enabling hybrid work, and it already has a proven track record of extending beyond video conferencing using its cloud phone service. And Pat Walravens, analyst at JMP Securities, believes the company will succeed in this transition by focusing on its strengths.
“They will stay in their roots. They will learn how we make our customer happy and provide products that are higher at a lower price,” he said. “And if they get that right, you’ll see them accelerate their growth again. But I think it remains to be seen if they get that right in the contact center.
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