Zoom Video Communications is up ~2x this year, do you know why?

Zoom Video Communications is up ~2x this year, do you know why?

Zoom Video Communications, Inc. (NASDAQ:ZM) has outperformed the mainstream US indices by a wide margin over the YTD period. Since closing at US$68.72 on 2 January 2020, the stock has closed at US$135.18 on 24 March 2020 – after closing at US$159.56 a day before.

COVID-19 implications have led to one of the steepest falls in global markets, paramount uncertainty and volatility. Spread of virus across the nations is also augmented by failed negotiations between Russia and the OPEC, leading to collapse in oil prices at a time when global oil demand was weakening due to widespread lockdowns and economic logjams. A fall in oil prices has disrupted the economics of the oil industry, taking us back to the oil price crisis around the middle of the last decade.

International Monetary Fund has recently noted that the level of the destructive implications inflicted the virus could be similar or worse when compared to the Global Financial Crisis of 2008.

It is important to note that the GFC stirred a financial crisis in the first place, which led to an economic crisis. This time we are witnessing a potential economic crisis on the forefront that might lead to a financial crisis – should the policy response fail to deliver the desired outcome, the consequence could be damaging.

However, we shall emphasise that banks are much stronger as compared to 2008, and the policymakers largely fixed the flaws in the banking system revealed by the GFC post the financial crisis.

Nonetheless, some businesses are gaining traction due to the tailwinds exhibited by coronavirus implications. One of these businesses is Zoom Video Communications that is listed on NASDAQ.

Related: Coronavirus Blackswan Turns 3 Healthcare Stocks to Multibaggers: ZNO up 6x, BIT & HCT Up 2x

So, what is the business model of Zoom Video Communications?

Zoom is in the business of communications, and its cloud-native platform is leveraged to provide networking, including voice, chat, video, data sharing and video communications. Its services have the capability to connect thousands of participants in a single meeting across different locations and devices.

Recent press releases by the company suggest that business is scaling

In March, the company introduced a referral program for Master Agents. Zoom expanded its Global Channel Partner Program to its Master Agents, which now includes Intelisys, Pax8, Telarus and AVANT Communications. 

It enables the Master Agent of the firm to avail a number of benefits and enhanced operational capabilities. These perks include the following:

  • access to the firm’s whole industry-leading product suite,
  • an ongoing commission on some products of Zoom for the life of customers,
  • efficient sales engagement abilities,
  • and free-of-cost tools and resources to underpin partner success.

Zoom noted that the program would be an important feature in market-launch initiative of its video-first unified networking platform. Also, the program is designed to enhance partnerships by expanding capabilities of partners to promote, develop and market their Zoom-based services and solutions.

Earlier in March, the Company announced an international expansion for its Phone services to eleven new countries with that the total count was 17 countries and a territory. And, the company also reported similar expansion for its Beta Service in twenty-four new nations and a territory.  

Its phones are now enabling local phone numbers and PTSN access, which would be available with new Metered and Unlimited Calling Plans. Zoom stated that the expansion reflects the firm’s commitment to deliver the best communication services. Post this expansion, the company’s customers would be able to access new languages, including Japanese, Korean, Russian, German and more.

How has the business performed in FY2020?

This month, the Company also released its fourth quarter and FY2020 results for the period ended 31 January 2020. Its 4Q revenue was US$188.3 million, up by 78% in year-on-year terms, and the full-year revenue was US$622.7 million, which increased by 88% over the previous corresponding period.

In 4Q, Zoom posted GAAP income from operations at US$10.6 million as compared to US$5.5 million in the same period last year. Post adjusting stock compensation & allied taxes, the business generated an income of US$38.4 million (non-GAAP income from operations). And, the GAAP based net income came at US$15.3 million, up from US$1.2 million in the pcp.

Source: Company Website

Overall, in FY2020, the Company posted GAAP income from operations at US$12.7 million as compared to US$6.2 million in the same period last year. Post adjusting stock compensation & allied taxes, the business generated an income of US$88.7 million (non-GAAP income from operations). And, the GAAP based net income came at US$21.7 million.

It was said that the increase in revenue was underpinned by new customers additions and increase from existing customers. At the end of 4Q, the Company had around 81.9k customers, and it sourced over US$100k in revenues (TTM) from 641 customers.

Outlook

Zoom expects to report revenue in the range of US$199 million to US$201 million in the first quarter of FY2021, and its full-year revenue guidance is in between US$905 million to US$915 million.

Likewise, the non-GAAP income from operations is expected to be within US$25-27 million while the full-year non-GAAP income from operations is anticipated to in the range of US$110 million to US$120 million.


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