Shares of Zoom Video Communications (ZM +8.05%) are down 10% over the last 12 months because investors believe that the days of growth for video calls are over. And there's certainly some truth to that sentiment.
At the end of January, the company had 220,000 enterprise customers, which looks impressive. However, that's only 4% more than a year ago. Moreover, the numbers suggest a drop in revenue from customers who are just regular people, not businesses. Given these slow growth numbers, video-calling software doesn't seem to be a high-growth opportunity.
On one hand, Zoom's results are commendable. From the start of 2020 to the end of 2021, the company's trailing-12-month revenue was up more than 500%. The company has held on to this growth without taking a step backward. On the other hand, the lack of growth now suggests that the upside from video communications hit a ceiling during the pandemic.
Zoom might be lacking growth in video communications. But the company seems to be becoming a top artificial intelligence (AI) company. And this quiet development deserves attention from investors.
NASDAQ: ZM
Key Data Points
Zoom's budding AI business
Zoom's AI tool complements its existing videoconferencing platform. It can automatically transcribe an entire meeting. More than that, it can respond to users' commands, such as providing a bullet-point summary of the video meeting. Or if someone signs on late to the video meeting, they can ask the AI tool to summarize what has already been said.
To me, this is one of the most practical applications of AI out there. And it's no wonder that it's already a big hit. Zoom only launched its AI companion tool back in September. And yet the company already had 510,000 customers using it as of January.
Granted, Zoom's AI tool doesn't cost anything extra. Therefore, there's really no reason to not give it a try. So take its incredible adoption rate with a grain of salt. That said, Zoom's AI tool can be something that differentiates it from competing videoconferencing platforms. And it can boost overall customer satisfaction. Those are important things for the ongoing health of the business.
How AI can fit into the bigger picture for Zoom
Growth for video calls might be waning, but Zoom is building new products to support further long-term growth. Among its expanding suite of products is its contact-center platform -- cloud-based software that allows businesses to communicate with their customers.
As it has grown its capabilities, Zoom has expanded its AI tools to its contact-center product. A new tool it offers is called AI Expert Assist, which directs service agents on what to say or do next when interacting with customers.
The catch here is that Zoom now offers various pricing tiers for its contact-center product. The AI companion tool is available on the lowest pricing tier. But the AI Expert Assist tool is only available at the highest pricing.
In other words, what started small for Zoom with AI is starting to filter through its various products. And as AI enhancements spread throughout its various products, it's introducing new pricing tiers. This could stimulate some long-term growth.
That said, Zoom's top-line growth is still a longer-term aspiration, not an immediate reality. Management expects less than 2% annual revenue growth in its fiscal 2025, which is its current fiscal year. While some of its customers are adopting new products, many of its enterprise customers have downsized and are consequently paying for fewer seats, which is a present headwind for revenue growth.
In sum, Zoom offers AI software that its customers are quickly adopting. As its expertise in AI grows, the company is offering more AI products that can help drive higher revenue from customers. Revenue growth isn't on the horizon for this year. But patient shareholders have reason to be optimistic that Zoom is doing what it can to retain existing customers and hopefully drive growth in time thanks to its AI tools.
