Zoom sees ‘pre-pandemic buying habits’ return as hybrid workplaces take hold

Profile picture for user ddpreez By Derek du Preez August 31, 2021 Audio mode
Zoom has been the poster child for ‘work from home’ during the COVID-19 pandemic, but its growth begins to slow as buyers consider next steps.

video conference

Zoom's share price fell 12% yesterday, despite its Q2 earnings beating Wall Street expectations. Why? The collaboration vendor is seeing a slowing of growth and CFO Kelly Steckelberg indicated that customers are returning to ‘pre-pandemic buying habits', as they assess their use of collaboration tools and strategies in the Vaccine Economy. 

Whilst the market reaction may have been sharp, the trends that Zoom is seeing should be entirely expected. And that doesn't mean that it won't continue to play a pivotal role in how work gets down going forward. As the vaccination rollout in many economies continues, buyers are simply growing more comfortable with in-person meetings and are assessing their workplace strategies for the future. 

This is a very different buying environment compared to a year and a half ago, during the peak of Zoom's pandemic success, when companies were in reactionary mode to keep the lights on. 

To give an idea of the slowdown, during the previous quarter Zoom's revenue grew 191%. This quarter year-over-year revenue increased 54% and is expecting growth of approximately 31% next quarter. 

Zoom itself has recently announced that it will be pursuing a hybrid workplace strategy when it is safe to open offices again, giving employees choice and flexibility over when and how they return. And as diginomica has been documenting, this will likely be the approach for many companies with an agile, knowledge-based workforce. 

So whilst the market may be a bit jittery over the slowdown in growth, Zoom still has plenty to be optimistic about over the long-term and it's likely that its platform will play a key role in the enterprise buyer mix. This is also true of many of its competitors, including Microsoft Teams and Salesforce owned Slack. 

And overall the numbers are positive. For Q2 Zoom reported:

  • Total revenue of $1.02 billion 

  • The numbers of customers contributing more than $100,000 in TTM revenue was up 131% year-over-year (2,278 customers in total)

  • Net income of $316.9 million, up from $185.7 million compared to the same period last year

  • Zoom now has 504,900 customers with more than 10 employees, up 36% year-over-year

  • Full fiscal year 2022 revenue guidance of between $4.005 billion and $4.015 billion

Building the Zoom ecosystem

What's clear from Zoom's investor call announcing its Q2 results is that the company is continuing to invest in the wider platform, focusing in on Zoom Apps and the developer ecosystem, as well as products that cater to broad enterprise needs. Founder and CEO Eric Yuan said: 

In Q2, we also achieved several milestones, setting the foundation for us to thrive as a platform. In July, we launched Zoom Apps, which brings over 50 apps right into the Zoom meeting experience. And this is just the beginning. The beauty of our platform is it allows our ecosystem of developers to add even more functionality, by building apps where workflows are integrated with meeting interactions.

This is a win-win because better integrations will boost our customer's productivity and afford our developers exposure to our large user base. The Zoom Apps Fund, which has already invested in over a dozen startups in our Zoom Apps and SDK ecosystem, further aligns us with developers, enabling them to focus more on innovation.

Enterprises want digital platforms that combine meetings, phone, events, office technology, and developer solutions in a way that is simple, reliable, and frictionless. This fundamental truth underpins our leadership position in video conferencing, and will help to drive further growth in Zoom Phone and Zoom Rooms, as we expand our platform and addressable market in the hybrid world.

Yuan also took the opportunity to highlight some customer wins and upsell s, including a ‘leading tech firm' that increased its Zoom Meetings licences over sixfold to 95,000 and a ‘global financial services customer' that added over 63,000 Zoom Phone licences. Yuan added that both wins were displacements of legacy solutions. 

The leadership team also pointed to NEC Corporation as a large customer win, where the Japan-based company deployed 110,000 Zoom Meetings licences. In addition to this, Seagate Technology, a data storage infrastructure vendor, procured 14,000 Zoom Meetings licences and 17,000 Zoom Phone licenses. 

The market stabilizes 

CFO Kelly Steckelberg indicated Zoom was able to grow its enterprise customer base, those spending more than $1 million in ARR, by 77% year-over-year. But it was also Steckelberg that indicated the sorts of trends that Zoom is likely to see over the coming months and years, which are being fuelled by a more ‘thoughtful buyer'. She said: 

It is important to note that as we've just lapped our first full quarter year-over-year compare since the start of the pandemic, we have seen customers return to more thoughtful, measured buying-patterns. While revenue, profitability, and cash flow were strong in the second quarter and the first half, other metrics have begun to normalize, especially when compared to the unprecedented year-over-year comps.

If you go back…[to] when we gave guidance at the beginning of the year, we had expected that towards the end of the year, but it's just happened a little bit more quickly than we expected. And we, of course, feel good that people are out moving around the world, but It's certainly creating some headwinds, as we've said, in the online segment of our business.

We saw the start a little bit in Q1 and now continue into Q2, where I think it's not necessarily measured in terms of how much they're buying, but more measured and thoughtful in how they are buying in that they want to take their time.

They're doing more complete proof of concepts, for example, versus if you think about a year ago…they were in this sort of stage of trying to keep the lights on…now they're taking the time to really be thoughtful. And it's kind of back to the way they used to buy pre-pandemic, which is just much more normal buying patterns.

My take

As I have noted, the market may not be super impressed with Zoom's latest results, but I believe it should be entirely expected. We can't expect Zoom to continue to deliver the sort of results it did a year ago, as companies begin to assess how they think about their workplace strategies and consider their collaboration frameworks. Zoom saw an acceleration of buying habits during the height of the COVID-19 pandemic and is now seeing the normalization of these trends. But what I am certain of is that things have changed and will continue to do so over the long term - and there is still plenty of opportunity for Zoom to excel. Buyers are in a phase of taking a step back and considering all elements of their collaboration mix, which is driving the slowdown in growth. But as Zoom continues to invest in its broader platform mix, I predict it will continue to play a central mix for many companies as they integrate it into its workflows and processes.