Here's the bull case on Zoom

1/ At $3.1b ARR 366% y/y, Zoom is THE fastest growing SaaS company historically and currently

Growth is COVID driven so the question is if growth will persist post-pandemic and how much MSFT Teams will be an impact

https://blog.publiccomps.com/the-bull-case-for-zoom-in-2021-2/

2/ Zoom is a cash machine with 50%+ Free Cash Flow margins and $1.5b FCF run rate.

This matters because after recent $1.75b public offering, Zoom will have $4b of cash to acquire other players (Frontapp, Superhuman, Calendly?)

3/ Zoom became a verb in 2020 as the whole world was on lockdown-- payback period dropped to <6 months as customers came signed up online & swiped credit card to use Zoom to do work.

CFO mentioned sales rep productivity coming down to normalized pre-pandemic levels in Q3

4/ Net Dollar Retention for customers with >10 ees continued to be >130% as customers continued to add more seats, buy more products (e.g Zoom Phone), and more integrated into their workflows.

Will be interesting to see when churn -- CFO said churn was better than expected

5/ Gross Margins for $ZM went down b/c K12 and school started up in the fall and are free/discounts-- Zoom still has to pay infrastructure to service these users.

Free users could be paying customers down the road. Zoom had and lifted 40 min restriction over holidays

6/ Zoom has the best product compared to Microsoft Teams, Google Hangout, Cisco Webex when looking at ratings on G2Crowd, TrustRadius, Gartner

Question is does Hangout and Teams get to feature parity? Both cos are making a lot of product improvemets:

7/ But.. Zoom trades in the middle of the pack at 35x ARR and 32x NTM revenue -- stock is down ~34% from ATH.

Despite growing the fastest and being the most profitable, Zoom trades less than slower growing and less profitable companies!

8/ Remote and hybrid work are here to stay. 90% of HR leaders in Gartner study say they'll let employees work remote post pandemic & <20% of executives so they'll go back to offices like pre-pandemic.

2020 proved teams can work remote and instead of you can work over

9/ Despite security concerns in early 2020, Zoom put out a 90 day plan and built end to end encryption into the product, added features to prevent Zoombombings, custom data routing.

Zoom seems to be able to move and iterate and bet is will do so even post pandemic

10/ At $20/month & $3.1B ARR, I estimate ~40m paid seats and using 800m knowledge worker mkt size, that's 5% penetration. Still plenty of room to grow among free + new users

Challenge is Microsoft Teams (115m DAU) and Google (235m daily meeting participants) Hangouts are free

11/ Bear case
Post pandemic, churn and growth as people want to meet in person and are sick of Zoom
Microsoft Teams and Google Hangout are just good enough, cheaper, and own cal/email integrations
High growth SaaS multiples come from 31x to 15-20x pre-pandemic

12/ Users schedule Zoom over email + calendar. Microsoft in Outlook making Teams/Skype default and harder to add Zoom. Same with Google Cal + Hangout.

Can Zoom really build an email and calendar client and get adoption? Or buy an upstart (despite how hot the VC market is)?

13/ Encouraging sign that Zoom is able to launch new products and upsell successfully-- Zoom phones hit 1m paid seats and super seamless within Zoom desktop client and mobile app ( @publiccomps pays for it)

https://blog.zoom.us/the-year-in-review-zoom-feature-product-highlights/ https://blog.zoom.us/a-million-reasons-to-celebrate-zoom-phone/

14/ Employees love Eric Yuan and Zoom keeps growing and adding headcount w/ new hires.

Wouldn't bet against the CEO who focuses on delivering happiness to customers, employees, investors

15/ Zoom is a ~$110b company today. If it grows CAGR 25-30% next 5 years and trades 15-25x ARR in 2025, that's a $200-$300b company. Bet is Zoom continues to power the modern hybrid workforce.

Comp: Slack sold to Salesforce for ~30x ARR growing 39% and 14% FCF margin.