Does Zoom Still Have Room to Run?

It seems like just about everyone on the planet has been on a Zoom video call in the past year or at least heard of Zoom Video Communications (ZM 0.15%). With the vaccine rollout progressing and people getting back to work, investors are wondering if this video meeting software specialist has any more runway to grow. On a Fool Live episode recorded on June 30, Fool contributors Brian Stoffel and Brian Withers discuss the chief financial officer's comments on this topic from a recent interview and take on the question of Zoom's growth rate post the global pandemic.

Brian Withers: Moving on to [a] company, I think it's the most popular company across the Fool universe, Zoom; Ticker symbol ZM. At a recent interview with CFO Kelly Steckelberg, had some interesting insights and the analysts from Jefferies opened up with a question that, you know what, I think just about every investor wants to know. He was like, "How much opportunity is still left out there for Zoom?" Steckelberg responded and said, "Absolutely. I often get this question." Yeah, no surprise, right? "If somebody doesn't have Zoom at this point," she says, "How have they have made it through the past year?" Everybody that needs it has it.

But that's not the case, she says, and she had a couple of anecdotes that she pointed to. One was in Q1, they just closed the biggest deal in [the] history of the company. It was a U.S.-based financial institution, a multi-year sales cycle they were going through. The company had pockets of Zoom users in different areas of the company but they didn't have a corporate contract with Zoom. It helped that the organization once certainly making it a standard across the organization and signing an enterprise contract significantly increased the spend with that large financial institution.

She went on to state a couple of metrics that they use internally to measure and track their growth. One she said was penetration in the Global 2000. Today, if you look at the Global 2000, only 15% of them are spending $100,000 or more [with Zoom]. If you think about the size of a Global 2000 organization, it's going to be large. It's going to have multiple locations, it's going to be global obviously. She said that certainly, there's 85% of the Global 2000 that they have opportunity to spend more.

When you drop that metric down to $1,000 dollars a year, the number goes well up over 50%. That shows that there's certainly organic deployment opportunities like they saw in the U.S.-based financial organization that she first talked about.

The company is projecting a top line just short of $4 billion dollars in revenue for the year, a 50% growth on top of last year's 326% growth. Just astounding.

Brian Stoffel: Let's talk about that 50% growth. Again, to be clear, I own shares of Zoom so I'm not purposely just trying to poke Brian every time we do this. [laughs] But when you say 50% growth, that includes the first quarter of calendar year 2021 versus the first quarter of calendar year 2020 when almost nobody was taking coronavirus seriously, before we saw the blast off happen to the stock.

My question is, if we just compare the second, third, and fourth quarters of last year and this year to each other, what does that growth rate look like?

Withers: Yes, this was a great question because I actually haven't looked at it this way and the way that you're asking me to look at it is basically post coronavirus push, what's the sustainable growth rate now that everybody may, like the question that the analysts asked, now that everybody's in Zoom, what's the ongoing growth rate for Zoom?

It's about 30-31%. Should investors be worried about going from triple digits [growth] to 50% down to 30%? I don't think so. The thing that investors need to remember that this new number, this 30% is already baked into the stock price.

Now with the slower growth rate, I don't think shares are going to double in a year [laughs] like they have in the past year or so. The stock is going to be on more of a normal growth stock trajectory. If they can maintain a 30% growth rate for the next few years, could Zoom [stock] double in the next four to six? Absolutely. Could it do it sooner? Potentially.

There is certainly some valuations at play here. Still Zoom is priced at a high valuation, and potentially could see additional slowing growth beyond the 30% down to maybe 25%. But Zoom has surprised us before. Its recent acquisition, I think it was just today, it was announced, Kites, a real-time translation software service. To me, that shows Zoom has big aspirations to continue what it calls delivering happiness to its customers.