Saying that cloud stocks over-performed in 2020 is the understatement of the year. Government responses to COVID-19 forced the use of digital communication tools on the world, sending cloud stocks into the stratosphere. And no company benefited more than Zoom and CEO Eric Yuan.
It’s been more than a yearsince we first heard the phrase, “Two weeks to flatten the curve.” Yet today, the lockdowns continue. Restaurants, churches, stadiums, movie theaters, schools, and offices around the world are still being threatened by mandated shutdowns. And as we all know from first-hand experience, socialization has been altered from face-to-face to face-to-screen. People around the world have had no choice but to familiarize themselves with cloud-based communication tools. And no free tool was downloaded more in 2020 than Zoom.
The video chat app was certainly around before the coronavirus made its appearance. It was originally conceived as a tool primarily for large companies and tech workers. But it’s hard to believe today that less than 12 months ago it was a company without any backing from a big player like Microsoft, Google, Facebook, Cisco, etc. But seemingly overnight, Zoom was a household name.
Suddenly, hundreds of thousands of people were downloading the mobile and desktop apps and signing up for Zoom’s free and paid services. Over an extremely short time period, the company’s profit multiplied by almost 100-fold. Revenue quadrupled. Analysts were shocked as Zoom stock soared, eventually positioning itself as a top stock of 2020 with 425% gains. Side note: two of the other top stocks of the year were Chinese company Nio (a Tesla challenger) and Moderna (vaccine maker).
Before COVID-19, Eric Yuan was already a billionaire. In 2007, Cisco purchased video calling software Webex, which Yuan worked on. Fast-forward to April 2019 when he took Zoom public, impressing with his new company’s profitability and growth. Now, in January 2021, Zoom shares are approaching $17 billion, placing Yuan inside the ranks of the world’s 100 richest people.
Similar cloud software companies like Coupa have also seen huge boosts in the era of COVID-19. Coupa’s stock elevated to 144% in 2020, which is worth mentioning because it highlights one of the year’s primary trends. One authoritative source shows a 119% growth for many other cloud companies in 2020. But these numbers aren’t even close to Zoom’s previously mentioned 425% ascent.
Bumps in the Road
But their rise wasn’t a perfectly smooth ride to the top. Back in the spring of 2020, demand for Zoom’s service was unprecedented. In the wake of this attention came software security and privacy concerns. Soon after, questions were raised about Yuan’s Chinese connections. On live television, Speaker of the House Nancy Pelosi even referred to Zoom as a “Chinese entity.”
“I became an American citizen in July 2007. I have lived happily in America since 1997. Zoom is an American company, founded and headquartered in California, incorporated in Delaware and publicly traded on Nasdaq.”
Soon after, the Chinese government brought to Yuan’s attention Zoom users that were holding commemorative Tiananmen Square meetings. The accounts were shut down. Missouri Senator Josh Hawley contacted Yuan about the incident, criticizing it. A statement from Hawley’s letter read, “Are you trying to curry favor with the Chinese Communist Party?”
Suddenly, Zoom CEO Yuan and his ascending company were under serious pressure. Negative PR and a huge usage surge were taking a toll. Many came to Yuan’s defense, including Webex head and early Zoom investor, Subrah Iyar.
In hindsight, what was viewed for a time as hurdles may have been blessings. 2020 year-end estimates from Bloomberg showed that Yuan’s worth surpassed that of Salesforce CEO Marc Benioff, a seasoned cloud software player since 1999.
Following in the footsteps of others who’ve reached similar heights, Zoom CEO Yuan has created Zoom Cares, a charitable giving arm. To date, he’s made donations to social equity groups, climate change advocates, and education.
What’s Next for Zoom?
It’s inevitable that Zoom’s uncanny growth rate will slow down in 2021. But demand for the service is expected to continue growing. The company plans on taking advantage of new consumer usage opportunities and hybrid work needs to facilitate continual growth. They have lots in the works.
Zoom Eyes Hybrid Work
A number of major companies have already announced that their employees won’t be required to show up to work in person on a regular basis, even after lockdowns and mandates are lifted. It’s probably safe to assume that many companies around the world will follow suit. This being the case, Zoom will undoubtedly be the primary enabler. Zoom makes hybrid work environments and distributed workforces possible.
It is expected, though, that Zoom may lose a good chunk of users when the world goes back to normal. Many one-person paid accounts, as well as many accounts with 2-10 users, may stop using the service regularly. But Yuan knows there’s a big opportunity to grow his revenue in another area. Enterprise customers.
When people return to work, Zoom plans to offer additional products within the traditional service. Upselling customers with add-ons such as conference room features (Zoom Rooms) and cloud phone services (Zoom Phone), all to meet the needs of the new hybrid office.
Zoom CEO Yuan knows there are many other cloud phone choices that offices can choose from; options from much more established companies. Convincing customers to choose Zoom may not be easy at first. One option that’s been discussed is the acquisition of one of those established providers. A company like RingCentral, for example. This would inject a substantial customer base and put them in an immediate position as a real voice vendor. Some in the industry have suggested that Zoom acquire entities like Dropbox and Smartsheet. This would allow them to compete with the likes of Microsoft Teams.
Even though plans of acquiring an existing cloud-based phone company is not something Zoom has announced, they did purchase Keybase earlier last year. Keybase is a file sharing and secure messaging device, and Zoom acquired them to improve their services on precisely those fronts.
Having said all that, one thing that Zoom CEO Eric Yuan is known for is his hyper-focus on making his product better. I think we can assume he’ll stick with his MO, making Zoom products more flexible and even more affordable.
Zoom is much more now compared to what it was at the beginning, which was primarily a business tool. And it plans to continue pushing the boundaries of consumer use. It’s already an online education go-to. It is used for social gatherings, conferences, yoga classes, and so much more. Yes, a large number of people used Zoom out of necessity last year. But the company is committed to extending their reach around non-work digital experiences.
Zoom’s new online events platform was recently announced. This is great news for people involved in things like concerts, music lessons, and exercise classes. You can even buy tickets and collect fees using the Zoom platform! A Zoom event marketplace has also been launched. It’s a place where you can create and announce free or paid public events and people can sign up right there on the platform.
Keeping the Conferences Going
Many experts believe that work conferences may stay primarily online, even after the coronavirus precautions calm down. Companies have reported that engagement seems to be higher with online meetings. Some owners think that in-person interaction may turn into a “feature”, with platforms like Zoom transitioning into the backbone of group communication. We’ll see.
No More Freebies For Education Users
During the COVID era, Zoom has made its paid services free for most educational institutions. These users have come to rely heavily on the service for online learning, mostly out of necessity. This majorly increased Zoom’s user count. But they can’t give hundreds of thousands of people a free ride forever. This initiative that started early in the pandemic is now weighing on the business. Because of this high base of free users, Zoom’s gross margins are getting too low for comfort. The service has already lifted its 40-min time limit for meetings on free accounts. And more lifts are sure to come.
As this happens, Zoom’s margins will obviously improve as many free users become paid users.
More Than Just an App
2020 was not an easy year for Eric Yuan’s company. It faced many issues that included privacy, security, PR, internal changes, and a barrage of criticism. They even faced an allegedly false accusation over end-to-end encryption claims that had to be settled with the FTC. Yuan was even quoted saying that for his employees, the environment was “incredibly hectic.” Despite all of this, Zoom was one of the most successful companies of 2020. Credit is due considering how quickly the business was forced to evolve given its enormous growth spurt.
With the unexpected events of 2020 behind them, 2021 will in many ways be an opportunity for Zoom to settle into its growth. The pandemic created many long-term opportunities for them to pursue.
It’s clear that Zoom is evolving from simply an application. It’s growing into a veritable platform. Innovation seems to be the name of the game for Zoom CEO Eric Yuan and his growing organization. Zoom is clearly here to stay. 2021 is sure to bring them even further into the forefront of our daily lives.