Zoom reports strong Q4 as it appoints ServiceNow CEO Bill McDermott to Board

Derek du Preez Profile picture for user ddpreez March 1, 2022 Audio mode
Summary:
Zoom also released guidance that suggests weaker growth for 2023, but this isn’t entirely unexpected as the COVID-19 pandemic gives way to the Vaccine Economy.

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Zoom reported a solid set of Q4 and full year results this week, as the cloud-based unified communications provider continues to capitalize on the digital work trends that emerged during the COVID-19 pandemic. However, as the Vaccine Economy begins to take hold across economies, the company issued guidance that points to slowed growth for the year ahead. 

Whilst full-year 2022 revenues stood at $4.09 billion, up 55% year over year, for full-year 2023 Zoom expects revenue to be in the range of $4.53 billion to $4.55 billion - up 11% year over year. It's this weaker guidance that likely sent shares down in after-hour trading. 

However, as diginomica has noted previously, Wall Street's response to slowed growth is largely short-sighted and doesn't reflect the structural shifts that are taking place in organizations across the globe - where there is still plenty of opportunity for cloud vendors to advance on customer acquisition. 

But back to the numbers. For Q4 2022, Zoom reported: 

  • Year-end number of customers contributing more than $100,000 in trailing 12 months revenue up approximately 66% year over year

  • Fourth quarter total revenue of $1.07 billion, up 21% year over year. 

  • Full fiscal year total revenue of $4.09 billion, up 55% year over year

  • Fourth quarter GAAP income from operations of $251.8 million, down 2% year over year. 

  • Full fiscal year GAAP income from operations of $1,063.6 million, up 61% year over year

Zoom added that enterprise customers grew 35% year-over-year to approximately 191,000 and that revenue from these customers grew 38% year-over-year, representing 50% of total revenue, up from 44% in Q4 last year. 

CFO Kelly Steckelberg said: 

We expect revenue from enterprise customers becoming an increasingly higher percentage of total revenue over time.

In addition to the results, Zoom also announced that it has appointed ServiceNow CEO Bill McDermott as an independent director to the company's Board of Directors, effective March 1st 2022. McDermott replaces Bart Swanson, an early investor in Zoom, who is stepping down from the Board after more than eight years. 

In many ways Zoom and ServiceNow have a complementary market offer, with both companies offering organizations technology that supports cross-organization collaborations and the shift to distributed work. McDermott also has extensive experience in enterprise sales and scaling companies. 

Commenting on his appointment, McDermott said: 

Zoom is a widely recognized, highly admired brand with incredible growth opportunities ahead.

I am thrilled to partner with Eric Yuan [Zoom CEO], an inspiring founder with a bold vision to improve people's lives on the Zoom platform. I am also excited to be joining the Board at this milestone moment for video, voice, chat and content sharing. I believe this company has tremendous potential to drive expansion of the Zoom platform.

Zoom's three pillars

Commenting on this week's results, Zoom CEO Eric Yuan spoke about what he refers to as the ‘three key pillars' of the company's strategy to drive future growth. 

The first pillar is focused on providing a fully unified communications platform, including video conferencing, events, chat, and phone. But up until last week, as Yuan notes, Zoom was lacking in its contact center offering. This has now changed, as Yuan noted: 

We announced the general availability of Zoom Contact Center [last week], an omnichannel customer engagement solution that is optimized for video and integrated right into the Zoom client. It brings unified communications together with modern contact center capabilities, helps customers connect over video, and also supports channels like voice, SMS, and webchat.

Zoom Contact Center is simple for admins to configure and deploy. They can easily create menus, greetings, and prompts right in the Zoom Admin portal. The product can also integrate chat and video into an existing digital presence, like a website, helping organizations have conversations with customers in the right place and at the right time. This is just the beginning of our plan to modernize the contact center and enrich the experience for our customer and our customer's customer.

The second pillar focuses on hybrid work. Yuan added: 

We believe hybrid work is going to become more flexible and less about location. No matter where you are - office, traveling, or home - Zoom wants to make sure you have a consistent experience. Whether with Zoom Rooms or on a Zoom-connected device, we want to make sure you're part of the conversation and able to collaborate, anywhere and everywhere.

And finally, the third pillar is focused on Zoom's platform play, where it is pushing ahead with its API marketplace, Zoom Apps and its SDK. Yuan said: 

Many technology companies tell me that they want to integrate Zoom into their platform to improve the communication and collaboration experience for their customers. For instance, we recently announced a Zoom-DocuSign integration. 

This will allow customers to review a document during a Zoom Meeting and approve it as part of a simple bi-directional business workflow. We are in the early innings of this transformation of work and communication. We believe there is a massive opportunity, and we plan to address it with the same level of innovation, scalability, and simplicity that has made Zoom the trusted platform for hundreds of thousands of businesses around the world.

My take

Everything points to solid success for Zoom in the medium term. It has strong growth in acquiring enterprise customers, which is increasingly making up a higher proportion of its total revenue, and it is steadily building out its product/platform portfolio. Wall Street may not be pleased about the slowed growth in 2023, but show me a cloud vendor that isn't following a similar trend as we enter the Vaccine Economy? That's particularly true for vendors in the digital collaboration space. Zoom is in a good position and there is still plenty of room for it to grow in the market. The guidance of Bill McDermott on the board won't harm it's prospects either…

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