Zoom Still Needs the Little People

Zoom’s online customer revenue growth has slowed significantly in recent quarters.


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The Ironic Challenge for Zoom Video Communications ZM 5.61%

is how to rid yourself of the customers who have made it a household name.

The videoconferencing provider’s fiscal first quarter results on Monday afternoon showed progress on that front. Business customer revenue grew 31% year over year and now comprises just over half of the business on a quarterly basis. That far outpaced the company’s overall revenue growth of 12% for the quarter.

Zoom also managed to deliver a forecast that exceeded Wall Street’s estimates for the first time in more than a year, leading the suppressed stock to make gains on Tuesday morning despite a sharp sell-off in the rest of the tech sector.

Zoom’s roots lie in the business market; the company was founded by an ex-Cisco executive with an idea of ​​how to build a video conferencing platform for companies that could challenge that company’s WebEx offering. The result was a super easy-to-use service that quickly became a lifeline for the masses sent home from offices at the onset of the Covid-19 pandemic.

Zoom’s “online customers” — those individuals and small businesses that signed up for the service without the involvement of a Zoom sales representative or one of the company’s resellers — accounted for 25% of total revenue in the fiscal quarter that ended. ended in January 2020 before the pandemic begins. That contribution rose to 56% in one year.

But that customer base is much less clingy, canceling with a few clicks on a web page as more people meet in person again. Zoom’s online customer revenue growth has slowed significantly in recent quarters, turning negative for the first time in the recent period – up 2% year-over-year to about $514 million.

Analysts expect that trend to continue. Consensus estimates from Visible Alpha currently see revenue from Zoom’s online business decline for the three remaining quarters of the current fiscal year.

The company rightly invests in vendors and other tools to build a more stable business base; sales and marketing expenses made up 34% of revenue in the recently closed quarter, compared to 26% in the same period last year. But a faster deterioration of the online customer base to prepandemic levels would still put a strain on Zoom’s revenue.

On the other hand, Zoom’s stock price has fallen more than 48% this year – and 83% from its high – even after a 5% jump on Tuesday. Sometimes there is really nothing for it but to go up.

write to Dan Gallagher at dan.gallagher@wsj.com

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