Zoom (ZM -1.53%) recently shared its churn numbers -- the number of customers it loses over time. In this Backstage Pass video, which aired Sept. 28, 2021, Motley Fool contributor Brian Withers takes a look at the numbers and puts them in perspective.
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Brian Withers: Here's the churn rate. This is the first chart I've seen from Zoom on churn rates, and I really like the way they did this. Each one of these lines is a different quarter. Then I don't know if you can see this. This is 1-3 months, this is 4-6 months, 7-9 months.
The easiest way to sign up for a Zoom subscription is to pay monthly. What they've seen is their highest churn is going to be in the beginning. This is eight percent, this is four percent. So they're losing the largest percentage of their customers within the first few months when they sign up. This makes sense. The longer that a customer is part of the ecosystem and part of the platform, the lower the churn rates are over time.
You can see this. This was confusing to me for a bit, but basically, these two boxes are the 0-3 months and the 4-6 months. There's high churn rate over here. The percentage of annual recurring revenue from these high churn early adopters was above 25 percent here. It climbed up in through fiscal year '21 as the coronavirus came. They brought on a lot of customers. But look where it is today, it's even below the 25 percent number. That says that, to me, when you look at this churn and you talk about those smaller companies, these individual contracts and you're worried about everybody abandoning Zoom, they feel like this is getting to be a smaller and smaller piece of their business and getting more in their rearview mirror and they see more of the customers moving into these longer, lower churn phases of the contract.
I thought this slide was nicely well laid out and told a good story.
You can also see contract length here. Just as soon as COVID started, boom, contract length dropped from 16 months down to 10 months, whereas more and more companies are doing monthly contracts or shorter-term contracts. You can also see this. This is Q4, so COVID plopped in here. This is the customers. This is the worst mix right here, is almost a 50/50 mix of customers having less than an annual contract. They actually dropped to 49 percent, where 49 percent of the revenue mix was coming from annual contracts. This is ticked up over time, over the past year or so. Not back to where it was pre-COVID, but certainly, this is looking up, and again, another thing to be excited about the business customers for Zoom and the mix of getting what I'll call richer from a customer set standpoint.