Few companies have been pushed to the forefront of public consciousness during COVID-19 like Zoom Video Communications (NASDAQ:ZM). Practically overnight, Zoom became a household name synonymous with video calling as people socialize and work from the confines of their homes. Following a surge in users, the company has been trying to balance ease-of-use with safety and security.
Zoom reports first quarter results today after the close. Here's what to look for.
Can Zoom convert free users to paying customers?
Starting off with consensus estimates, analysts are modeling for Zoom to bring in $202 million in sales and $0.09 per share in adjusted profits. The company's own guidance calls for revenue of $199 million to $201 million, with adjusted earnings per share of $0.10.
Investors will also want to see if Zoom's user metrics continue to march higher. A little while back, Zoom had said it had reached 300 million daily active users but retracted that claim and clarified that it meant 300 million daily active meeting participants. A single person can be counted as multiple meeting participants if they attend numerous video conferences. That important distinction aside, Zoom is still enjoying astronomical growth in engagement -- maximum daily meeting participants were just 10 million in December.
Zoom has also been working feverishly to beef up security on its platform. As quickly as Zoom became a household name, so too did the term "Zoombombing," when uninvited hackers or otherwise malicious actors join a meeting to cause disruptions, oftentimes with inappropriate content. The tech company has hired former Facebook Chief Security Officer Alex Stamos as an outside consultant and has been releasing a steady string of security upgrades in an effort to address criticisms.
Many security features such as end-to-end encryption will be reserved for paying customers and organizations instead of free users, Stamos told Reuters last week. The familiar freemium strategy of offering more features for a price could help Zoom convert more users into paying customers. On Zoom's fourth-quarter earnings call in March, when the coronavirus was spreading rapidly, management cautioned that it was too early to tell if the company would be able to convert free users to paid tiers. Hopefully, Zoom has a better sense of what that conversion rate might look like now.
However, investors seem to already be pricing in lofty expectations. The stock has already tripled year-to-date and now trades at nearly 2,300 times trailing earnings and over 400 times forward earnings. Zoom's market cap is approaching $60 billion.
Credit Suisse analyst Brad Zelnick downgraded Zoom shares in April, in part due to concerns around the paid conversion rate. Shares were trading below $130 at the time and have since soared above $200. Even if Zoom puts up strong results, the figures may still not be enough to meet the market's high hopes.