Zoom may be the breakout star of the “work from home” environment, but investors should keep an eye on its recreational uses as well.
Shares of Zoom (ZM) - Get Report have continued their hot streak into June, gaining 20% since the videoconferencing firm trounced first quarter revenue estimates and raised its sales outlook. Business users drove Zoom’s blowout quarter, with the company reporting 354% growth in customers with more than 10 employees and a 90% increase among those contributing more than 100,000 in revenue.
“Zoom is becoming the de facto standard for videoconferencing,” said DA Davidson analyst Rishi Jaluria.
But Zoom’s usefulness during COVID-19 extends well beyond just work meetings -- and recreational uses could prove a promising line of business for the company. With social distancing in effect, and businesses like movie theaters and gyms either closed or operating at minimal capacity, Zoom is also the default for everything from virtual happy hours to remote yoga classes. And those uses could prove durable even as businesses reopen.
“I think we’re going to be surprised by how many of these use cases stick around,” Jaluria added. “Consumer behaviors have shifted -- people who were using phone calls to connect with friends will shift to Zoom. And I think Zoom is going to find a way to monetize things like fitness classes online.”
Zoom has already shown a drive to expand beyond work-related videoconferencing. Last month it released Zoom Phone, a straightforward cloud calling solution in cases where video isn’t needed. And more products are likely coming down the pike, either by way of in-house development or acquisitions. Zoom increased its R&D spending last quarter, and CFO Kelly Steckelberg said at a recent shareholder meeting that Zoom also hired its first corporate development employee to evaluate possible acquisitions.
“Certainly, we will continue on this path of M&A as an opportunity to augment not only our talent, but our product portfolio as well,” she said.
Zoom’s stock performance this year -- its market capitalization has more than tripled year to date -- signals high expectations for the company. The viral nature of Zoom has made it practically synonymous with the stay-at-home environment, and investors seem confident that it can continue monetizing its large base of casual users. Only around 15% of Zoom’s overall user base are paying users.
On its first quarter earnings call, Zoom CEO Eric Yuan said that Zoom can "for sure" monetize the broad use cases -- such as happy hours or online learning -- that have risen from COVID-19, though he says Zoom won't sell ads or user data.
All those Zoom hangouts could reap benefits longer term for investors, Jaluria said, as younger users rise in their careers and bring a trusted videoconferencing tool along with them.
“That’s the brand they know and bring to the workforce," he added.