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High Growth, Great Management, And The Element Of Convinience

|About: Zoom Video Communications, Inc. (ZM)
Summary

Zoom has doubled revenue in the last 3 and 6 months from a years prior.

Cost of Revenues remained flat over expansion.

Scalable business model with expansionary market.

Zoom Video Communications, Inc. is a frictionless video, voice, chat, and content sharing platform. User’s of the cloud-based system can do so from any location on nearly any device. Zoom has broad industry appeal, and is widely used by professionals in the education, entertainment/media, enterprise infrastructure, finance, healthcare, manufacturing, retail/consumer products, and software/Internet industries, as well as individuals. Zoom Video Communications, Inc. was founded in 2011 and is headquartered in San Jose, California.

With the growing number of Americans working from home, opting to escape metropolitan life, and the increased globalization efforts from major corporations, Zoom is primed to grow users with a cloud based, scalable business model. Conducted research has found that employees who telecommute or work remotely are more productive and feel less stressed. According to Forbes, approximately half of the United States population works remotely. By 2020, Gen Z will encapsulate 35% of the workforce in the United States. This generation grew up with technology in their hands, and are more apt to handle workloads remotely, and produce them more efficiently. Firms around the world are expanding their horizons to beyond international borders. Interaction and communication are necessary, and Zoom is an integral part of that growth and expansion. The company’s revenue from APAC and EMEA represented 20% and 18% of total revenue for the three months ended 7/31/19 and 7/31/18, respectively, and 20% and 18% of total revenue for the six months ended 7/31/19 and 7/31/18, respectively.

In their latest 10-Q, for the quarter ended 7/31/19, Zoom displayed explosive growth in their top line. In the 3 months ended 7/31/19, their sales were up 95% from a year prior. For the six months ended 7/31/19, sales increased 98%. This is all while cost of revenues remained flat between 18.3%-19.4%. To nearly double sales but keep costs flat is a testament to the scalability of Zoom’s business model. Furthermore, Net cash provided by operating activities was $31.2 million for the quarter, compared to $14.4 million in the second quarter of fiscal 2019, and FCF was $17.1 million, compared to $8.2 million in the second quarter of fiscal 2019. Zoom is on track to finish their third quarter (1/31 FY) with strong financials.

Zoom can expand revenue in two ways: by expanding their current accounts in order to garner new business, and new accounts that they were previously not engaged with. Halfway through FY2020, Zoom boasted over 66,000 customers with an employee count of at least 10, which is up nearly 80% from a quarter prior. Additionally, over 450 customers contribute more than $100,000 in TTM revenue, which is up 104% from the same quarter in FY2019. Zoom is forecasting FY2020 revenues between $587M-$590M.

Zoom was founded in 2011 by Eric Yuan. Prior to Zoom, Yuan was a Vice President as Cisco, primarily responsible for the development of their collaboration software. Yuan was also a founding engineer at WebEx, which is now owned by Cisco and competes with Zoom. Yuan has received many accolades as an entrepreneur and as an engineer. Notably, Yuan was added to the Business Insider list of the 52 Most Powerful People in Enterprise Tech. In 2018, Yuan was named the #1 CEO of a large US company by Glassdoor. Additionally, Yuan was named EY Entrepreneur of the Year in Northern California (software category). With a strong financial position, high growth, and a widely respected and recognized team, Zoom is primed for future growth.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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