Zoom quarterly earnings show sharp rise in paying customers

The number of companies paying Zoom for video conferencing rose sharply in the previous quarter, convincing analysts that the service brings in more than just free users and is a viable competitor against Cisco and Microsoft.

In the second fiscal quarter, which ended in July, the number of customers with more than 10 employees grew 458% year-over-year from 66,300 to 370,200, according to the latest Zoom quarterly earnings. Customers spending more than $100,000 in the last 12 months increased 112%, from 466 to 988.

Zoom expects to end the fiscal year with $2.38 billion in revenue, or approximately 283% growth. That's much higher than the company's guidance at the beginning of the year, at less than $1 billion.

Alaa Saayed, an analyst at Frost & Sullivan, said he expects the provider to end the calendar year with at least triple the number of customers it had at the end of 2019. He added that he expects at least $2 billion of Zoom's revenue from online meetings.

The quarter established Zoom as a "key competitor" to Cisco and Microsoft, Saayed said. Behind Zoom's success was a user interface that simplified the process of holding online meetings. 

"Nothing trumps simplicity and user experience," said Roopam Jain, also an analyst at Frost & Sullivan.

The pandemic-induced movement toward remote work and virtual learning drove Zoom's growth, founder and CEO Eric Yuan told analysts this week during the company's earnings call.

"With the pandemic persisting, we are committed to work hard and are humbled by our role of enabling communications worldwide during this challenging time," Yuan said, according to a transcript of the call on the financial site SeekingAlpha.

Zoom's revenue grew 355% year-over-year, from $146 million to $664 million. CFO Kelly Steckelberg said it was a "remarkable quarter" for Zoom. Results far exceeded the company's guidance of roughly $500 million as demand soared.

Aiding user growth was Zoom's introduction of new product lines, including a hardware leasing program and a touchscreen video conferencing device called Zoom for Home. The company has also expanded the global reach of its Zoom Phone service to more than 40 countries.

While analysts expected Zoom to report growth, the company surprised the market with exponential growth in the paying user base of Zoom Meetings and Zoom Phone. 

"Some really large Zoom Phone wins means customers will increasingly standardize on Zoom for voice as well as video," Jain said.

In addition to financial statements, the company announced that it hired former Salesforce senior vice president of security operations Jason Lee as its new CISO.

Zoom has recently experienced a spate of incidents involving malicious actors and a highly publicized problem of Zoombombing that sowed doubt about its ability to ensure safe use. Over the last quarter, the company addressed these issues with a 90-day plan designed to improve its security and privacy.

Yuan reassured investors that security and privacy remain a top concern despite the expiration of the 90 days. He has been holding weekly security briefings.

"In terms of privacy, security and internal process and systems, I think, again, we are very committed," Yuan said.

The company has been transparent about security issues, Jain said. Still, there will be lingering security concerns among some customers.