Zoom forecasts sales surge as video conferencing becomes the norm

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Zoom increased its annual revenue forecast by over 30% after comfortably defeating quarterly estimates on Monday since it converts more of its huge free user base to paid subscriptions.

Shares of Zoom Video Communications Inc, which have jumped nearly four-fold this season, rose 9.3 percent to $355.30 after the bell. Earlier in the day they hit a record closing high of $325.10 in regular trading.

Video-conferencing platforms, once used mostly as a technological substitute for in-person meetings, became a critical part of daily life this year for people stuck at home under coronavirus constraints, be it for work, school or socialising. Zoom rivals like Microsoft Corp’s Teams and Cisco System Inc’s Webex have also seen usage hyper-growth.

When the pandemic hit in early 2020, Zoom was a relative upstart founded by a former Cisco executive which had gone public on a promise to make video conferencing applications easier to use. However, the ease of use came with privacy and safety concerns that drove some customers to competitors earlier this season and prompted Zoom to embark on a 90-day plan to address the issues. Zoom started testing end-to-end encryption of its support in July but has not yet implemented the feature for most users.

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The surge in usage also strained Zoom’s infrastructure, with a few outages last week as schools in many regions of the United States resumed classes virtually.

Since the beginning of the pandemic, Zoom has worked to convert the mass of free users into paying clients, which is important because the business relies on both its own data centres and cloud providers such as Amazon.com and Oracle Corp to provide its serving, meaning it has to bear costs for free users.

The company said earnings rose 355% to $663.5 million, topping analysts’ average estimate of $500.5 million.

On a conference call with investors, Zoom Chief Financial Officer Kelly Steckelberg said the company’s gross profits will remain in the same range as the fiscal second quarter for the rest of the fiscal year.

“The revenue growth is accelerating,” Chaim Siegel, an analyst with Elazar Advisors, told journalists at the news agency Reuters.

“Even though they gave quite powerful guidance for next quarter it’s possible they are being conservative if you consider a stay-at-home back-to-school. Zoom is a household word.”

Zoom’s number of large customers – those generating more than $100,000 in revenue in the past year – more than doubled to 988 in the fiscal second quarter.

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The organisation, founded and led by former Cisco director Eric Yuan, raised its annual revenue target for fiscal year 2021 to a range of $2.37 billion to $2.39 billion, from $1.78 billion to $1.80 billion before.

Net income attributable to common stockholders rose to $185.7 million, or 63 cents per share, from $5.5 million, or 2 cents per share, a year earlier.

Excluding items, the company earned 92 cents per share, beating the average analyst estimate of 45 cents, according to IBES data from Refinitiv.

The team at Platform Executive hope you have enjoyed the ‘Zoom forecasts sales surge as video conferencing becomes the norm‘ article. Initial reporting via our official content partners at Reuters. Reporting by Neha Malara in Bengaluru and Stephen Nellis in San Francisco. Editing by Sriraj Kalluvila, Leslie Adler and Richard Pullin.

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