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Students Are Zoom Video's Achilles Heel

Gilles De Roo profile picture
Gilles De Roo


  • A large number of the recent accelerated growth of users is due to high school and college students worldwide.
  • CEO claims “90,000 schools across 20 countries are using the service to conduct classes remotely”.
  • With an increasing financial pressure on schools to reopen for Fall 2020, Zoom risks losing all of its student users.
  • Downside risk prevails while upside is limited.


Eric Yuan, Zoom CEO, recently boasted the company now has 300 million daily participants. A correction from the 300 million daily users previously stated. Due to the lockdown during the COVID-19 outbreak, the user base went on an exponential run starting in December 2019, the first month of the outbreak. This led to an extreme valuation expansion to the current P/S ratio of 55x with a share price of $135.17. A large portion of the share price growth is due to hopes of increased potential monetization of these users. Therefore, a closer look at the specifics of the user base is definitely warranted. After investigating the potential composition of the user base, it becomes increasingly clear that a large portion consists of low-revenue students who will soon leave the platform as schools reopen. This creates a lot of downside risk for Zoom's share price and should be a concern to investors.

Zoom Share Price - YCharts

Source: YCharts

Difference between daily participant and daily user

As Zoom recently corrected the 300 million number from daily active users (DAU) to daily participants, it is important to know the difference. A DAU, as the name suggests, only counts users once a day. Daily participants, on the other hand, are counted multiple times. For example, if a student has 4 classes in a given day and attends all meetings, 4 daily participants are added to the total. The daily participant number is potentially very inflated compared to the actual DAU number.

The user base

Given that we now know the daily active participant number stands at around 300 million as of April 2020, we can look at the data to create a potential composition of the user base. The main split consists of students and professional users in the workforce. Given that over 90,000 schools are now using the Zoom

This article was written by

Gilles De Roo profile picture
Finance undergraduate based in Phoenix, Arizona. Looking for opportunities to take advantage of mispriced assets. Opinions expressed in public articles are exclusively my own and not affiliated with any company.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (25)

DGrainger profile picture
Medical practices using Zoom for Virtual appointments are at legal risk related to HIPAA based prosecuting attorneys because of lack of security with Zoom. HIPAA rules are that if there is even the potential for exposure of patient information exists. then the practitioner MUST notify all patients in the practice. This is a risk as attorney attempts to impugn the business practices of mrdical practitioners in malpractice cases will seize on this....
Zoom is HIPAA approved. Thanks for the info though.
Richard Saintvilus profile picture
@HeyMe -

You beat me to the response. Zoom has been HIPAA compliant for some time. www.hipaajournal.com/...
DGrainger profile picture
The legal profession will use it in discovery and point to the FBI warning and NY AG in effort to impugn business practices of medical practitioners....
ivanz profile picture
I think this stock will fall, but the short interest is probably picking up.
Wish I’d bought PUTs at 160.
Now????? Danger.
Like Google 15 years ago, Zoom has now become a verb. Educational institutions are discovering the possiblitiies of distance education. Business are realizing they can save a bundle on airfare.

Under the old paradigm, the article makes sense. But who really thinks we will wake up tomorrow and be back in Kansas?
rentseeker profile picture
I would go a step further in your analysis and try to estimate what you think revenue growth should be after you strip out free users and account for increased usage from existing paid users.

10 million DMP to 200 million to 300 million is a 30x increase in usage of the platform, but what does that mean for revenue growth? Is it 10x? 2x? 1x? 50%? 20%?

Right now consensus estimates have 7-8% revenue growth from 4Q to 1Q.
Nice Technical & Fundamental Analysis of Zoom: https://youtu.be/eQHo71oZNNg
I know a lot of Zoom users - none of them pay for it or have any intention of ever paying for it.
Very good article. I did my own calculations in a different way but came to similar conclusions. There are about 80m - 120m DMP associated with the school students. Also, consider the universities using it more as well.
However, after dedicating the higher unusual usage, there is still about 100m DMP left to compare with 10m DPM in 2019. Which will result in a revenue increase of 10x in Q1, about 1.5b
And 3x increase in revenue forecast to 3b in fiscal Y21.
Let me know if you are interested in more details.
Gilles De Roo profile picture
Thank you for your comment,
Interesting that you arrived at a very similar number for the DMP due to students. Definitely open to hearing more about your calculations.
rentseeker profile picture
I'd be wary of translating an ex-student DMP estimate directly to revenue growth because usage of Zoom from existing users has no doubt increased without a subsequent increase in revenue.

For example if I was a paid Zoom user at the end of December and did 2 Zoom calls on average per day and now I'm doing 4, my contribution to the DMP figure doubles without any increase in revenue.

Having said that, revenue growth will be much higher than what analysts and the market are currently expecting.
Daily meeting participants Y20Q4 10.000.000
Daily meeting participants Y21Q1 300.000.000

"To make the numbers comparable we should perform adjustment for unusual usage by the users compared to 2019.
In this analysis following factors can be considered
1) Unusually high proportion in participation of non-business users
2) Unusually high number of schools
3) Maximum number of users is to expect on a working day (WD)"

*Daily meeting participants (DMP) analysis for April*

Unusual schools impact at WD on DMP

Number of students per School 500
Number of new Schools that are using 90.000
Schools & students participation index 70%
Number of meetings per day for a student 3
Unusually high school DMP at WD 94.500.000

DMP without unusual school usage 205.500.000

Unusual privet usage impact at WD on DMP
Procentage 30%
DMP 61.650.000
DMP without unusual usage 143.850.000

Comparable number of DMP 143.850.000
Comparable growth 1439%

I just did the export of the table from excel. So it can look messed up. Some of the variables can be of cause adjusted.

Here are some further calculations.

DMP without unusual usage 143.850.000

Comparable number of DMP 143.850.000
Comparable growth 1439%

Revenue Estimation
Y20Q4 Revenue $188,25
Revenue January '20 $62,75
License usage optimization 90%

Revenue Q1 21
Procentage estimation related to the January '20
Februar 115%
March 959%
April 1598%
Resulted Revenue based on a procentage
Februar $72,16
March $601,78
April $1.002,96

Revenue Y21Q1 $1.676,90
Revenue Y21Q1 891%
I hate to say this Zoom kept on creating unnecessay negative media attention. Be it security matter or the definition of how many users using such service etc etc.
EriCoin profile picture
And a little of age old racism towards the CEO also.
It's also important to note, that even the mother of the CEO lives now in USA. So he has very few connections with his country of birth.
Wolfstar profile picture
A Red Chinese operative maybe???
burnedb4 profile picture

Very interesting, well thought out article. You raise a valid point about the higher churn rate caused by the re-opening of public schools this fall.

There are three points you might want to consider, and one has to do with the impact of the pandemic creating cultural changes.

The first has to do with the workforce, many of which have been working from home almost two months. The lasting impact from the pandemic is that many may find a preference to work from home either partially or completely which could be a growth engine for Zoom, Microsoft, Google, et al.

Second, with the cost of college education rising beyond an affordable level for most Americans, you will likely see many institutions offering alternative through video conferencing, which would be at a much lower cost structure than typical bricks and mortar colleges.

Third, many of Zoom's 200 million+ customers are currently non-paying. This can be monetized through an advertising platform which could be lucrative. Additionally, Zoom could offer a reasonably priced subscription fee which would omit the commericials.

Thanks again for your article and interesting point of view.
Great points. Thank you
Gilles De Roo profile picture
Thank you for the feedback,
you bring up some great points to think about. I definitely agree with point one, briefly mentioned that in the article as well. Point two and three would have a significant impact if implemented. Your second point would change the dynamic of college tuition. As for the third point it remains to be seen how much leverage Zoom has with increased competition from Google, Microsoft and Facebook.
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