The work-from-home boom might be here to stay. Zoom Video Communications (ZM 3.39%) recently announced surprisingly strong sales growth as customers, especially enterprises, continued to make heavy use of its platform even as the pandemic threat fell in several parts of the world in early 2021.
In a conference call with analysts, CEO Eric Yuan broke down that happy result while explaining why executives are confident in a $4 billion sales year ahead. Let's look at some highlights from that presentation.
1. Big clients set the pace
"We are very happy to announce that we closed our largest deal ever...with a leading global financial services firm that has selected Zoom Meetings to deploy to over 90,000 hosts." -- Yuan
Zoom's strong sales growth (revenue jumped almost 200% this quarter) is increasingly being driven by demand from large enterprises for its video teleconferencing platform. Customer contracts with annual values over $100,000 jumped 160% this quarter, and the company bagged its biggest single contract to date. Other large customers, including Kimberly Clark and Target, also boosted their commitments.
That success provides more than just a one-time boost to revenue. It also points to an enduring hybrid work environment that requires constant connections between different locations. "The hybrid model is here to stay," Yuan said.
2. Customers are liking the bigger portfolio
"Our net dollar expansion rate for customers with more than 10 employees exceeded 130% for the 12th consecutive quarter as customers acquired more Zoom Meetings, Rooms, Webinars, and Phone products." -- CFO Kelly Steckelberg
Zoom had no trouble marketing new services to existing customers. Many renewed contracts started up at higher annual commitments thanks to solid demand for complementary services like its Zoom phone platform. Executives expect this trend to continue for at least the next few quarters, too.
And Zoom is aggressively targeting a bigger services portfolio over time. Zoom nearly doubled its R&D outlay and granted developers access to big pieces of the platform. These moves should help the company bulk up its offerings so it has a wide range of higher-value products to market toward its growing base of users.
3. The hardest part is over
"Our renewals, sales, and online marketing teams really outperformed in securing renewals, and the success is a testament to their hard work and our product's strong and lasting value proposition." –-Steckelberg
Even as it boosted its fiscal year outlook, Zoom cautioned investors about big question marks that might affect growth over the next few quarters. That list of risks includes shifting consumer mobility trends and further COVID-19 outbreaks in key markets.
Working against those risks is the fact that Zoom just secured a huge commitment of contract renewals. Due to the timing of the beginning of the pandemic, about four times as many contracts were up for renewal in Q1 compared to a year earlier. Executives credited the sales and marketing team for converting most of these deals, many at higher annual prices.
That seasonal bump also means that the rest of the year is a bit less cloudy since a disproportionately large segment of Zoom's customer base has already signed up for another year of service. That's one more factor suggesting Zoom has a good shot at crossing $4 billion of sales this year compared to just $623 million in the last full year before the pandemic struck.