Yahoo Finance 2020 Company of the Year: Zoom
Zoom (ZM) became a verb this year. Amid a global pandemic that shuttered huge swaths of the economy, drove millions out of work, and forced the term “social distancing” into the national lexicon, the video chat service turned into a lifeline for millions of people.
Founded nine years ago, Zoom became a household name in 2020, as homebound consumers looked to the video chat service’s free 40-minute option to connect with friends and family. Like calling a web search Googling, video chatting has become Zooming rather than Skyping or FaceTiming.
In the year 2020, “Want to Zoom tonight?” often replaced the phrase, “Want to grab a drink?”
And “Zoom school” has become familiar to parents worldwide as school closures keep kids out of physical classrooms.
All of this from an app that wasn’t even designed for regular consumers.
“I would have loved to say that we had planned it perfectly. Obviously, we didn't. Nobody has planned this pandemic,” Zoom COO Aparna Bawa told Yahoo Finance. “And I think the biggest benefit of Zoom that you're seeing in the user base is that we do provide that human connection when we desperately need it most.”
The transition hasn’t been easy. In March, Zoom came under fire for so-called Zoom-bombings, where uninvited users “bomb” meetings to annoy or harass invited meeting members. The FBI even issued a warning about teleconferencing “hijacking” amid COVID-19 that specifically referred to Zoom.
Still, Zoom has become the app used by everyone from the Federal Reserve to everyday Americans trying to keep their social lives afloat. In its most recent quarter, Zoom saw year-over-year revenue growth of 367%, with the number of customers who spent more than $100,000 in the trailing 12 months growing 136% year-over-year.
And investors have been watching. Zoom’s stock price has skyrocketed in the last 12 months, jumping an incredible 475% from $71.90 in January to $410.01 as of the close of markets on Dec. 4.
It’s for all of those reasons that Zoom is Yahoo Finance’s 2020 Company of the Year.
See also: 3 reasons Tesla isn’t our Company of the Year
From enterprise to the home
Zoom went public in April 2019 alongside other big-name tech unicorns including Pinterest (PINS), Lyft (LYFT), and Uber (UBER). But Zoom, unlike its contemporaries, was actually profitable. Still, the firm faced major competition from tech giants in the video chat space including Microsoft (MSFT), Google (GOOG, GOOGL), and Cisco (CSCO). Even Apple (AAPL) and Facebook (FB) offer video chat solutions popular with everyday consumers.
"With the global launch of [voice-calling solution] Zoom Phone, the company is now on par with incumbents like Microsoft and Cisco," Raul Castanon, an analyst at 451 Research, wrote in a note to clients following the company’s Q3 earnings. "Zoom also has the advantage of being born in the cloud, which gives it an advantage over vendors like Cisco that have faced challenges in transitioning their legacy products."
Zoom wasn’t designed for consumers, though. It was built for enterprises that needed a video chat platform for virtual meetings. While the company wasn’t marketed as an option for everyday people to replace the likes of Skype or FaceTime, it has done exactly that.
It was Zoom’s ease of use — send a link and you’re in a chat — that helped win over companies seeking a video communications tool for their employees. And as the pandemic spread from country to country, users began jumping on Zoom not only to do work, but also to spend time with coworkers, friends, and family.
Zoom measures user numbers by customers with more than 10 employees, and those that paid more than $100,000 in the last 12 months. The company started the year with 74,100 customers with more than 10 employees and saw that number increase to 433,700 customers with more than 10 employees by the end of November. Revenue increased from $166.6 million in fiscal Q3 2020 to $777.2 million in fiscal Q3 2021.
The incredible growth — and seeming overnight transformation of the video chat service to one used by individual consumers, small businesses, and community groups — was a struggle to fully comprehend, Bawa admits.
“I have to say, you know, I joke I think I have ulcers from that time period, to be honest, just responding to the demand,” she said. “It's very humbling. It's an honor and privilege to serve the world. And I am so proud of what Zoom has been able to do.”
While Zoom doesn’t share individual user numbers, it did announce that daily meeting participants, across business and social meetings, skyrocketed from 10 million in December 2019 to 300 million in April 2020. While a single user can participate in multiple meetings per day, it’s still notable that Zoom saw such a big spike in that period of time.
Taking school virtual
And many of Zoom’s new users were attending virtual school. While Zoom has been working with colleges and universities since as far back as 2013, the addition of K-12 schools added even more pressure to the platform beyond the newfound consumer use cases.
Zoom began lifting the 40-minute limit on free basic accounts for thousands of schools around the world in March. As school systems around the world transitioned from in-person learning to remote learning, Zoom classes quickly became the norm — along with other remote learning options, like Google’s competing offering that uses its Meet video chat software.
The transition was difficult for many teachers and students who never used remote learning tools. And with a new school year set to start in September, just as the virus was expected to pick up again, Zoom hosted a two-day free Summer Academy to help get educators better prepared.
“The need for the K through 12 environment globally is absolutely something at this scale that is unprecedented, that we haven't seen,” Zoom CMO Janine Pelosi told Yahoo Finance.
“So we did make the decision early this year that we were going to open up our free product, remove the 40-minute limit for schools that did have that need. And at this point, we’ve opened it up in over 25 countries,” she said, noting that over 125,000 different schools now have free access.
But while Zoom’s ease of use made it a star in the enterprise, it began to show its cracks in the hands of everyday consumers and students at the height of the pandemic.
Zoom’s security uproar
According to Bawa, with so many new customers making use of the app in ways that didn’t involve a traditional enterprise IT support structure, security vulnerabilities began to crop up.
And the most well-known phenomenon, Zoom-bombing, was especially troublesome.
Zoom-bombing, which Zoom calls “meeting disruptions,” involve unwelcome users joining Zoom chats. In some cases, “bombers” shouted curses or posted inappropriate images. The issue, along with reports that Zoom was routing some of its calls through China, caused customers to question the company’s security capabilities.
In April, New York City’s schools, the largest public system in the country, pulled Zoom support for its 1.1 million students. More worrying was the fact that while Zoom advertised the use of end-to-end encryption in its video services, when, in fact, it was not using the protocol. That prompted the Federal Trade Commission to accuse Zoom of false advertising, claims that Zoom ultimately settled.
As a result, on April 1, Zoom announced that it was halting work on all features unrelated to security for 90 days. The changes implemented during the pause included turning passcodes and meeting waiting rooms on by default — they were previously turned off — and installing a new interface panel that made the service more secure. Zoom also gave users the ability to select where their calls are routed. In May, New York City schools began using Zoom again.
“We have use cases that we had not seen before,” Pelosi said. “New, brand new use cases for the product. And those might require different setups...things that maybe were an optional feature we make default now.”
Zoom also moved to purchase encryption firm Keybase to establish full end-to-end encryption for the service, which went into effect in October.
According to Bawa, the company had to ride a fine line between ensuring user security, while still allowing for the ease of use that made Zoom so popular in the IT setting in the first place.
Despite the blowback, Zoom’s stock price, which topped out at $151.70 in late March just as the controversy was taking off, recovered by late April.
Moving beyond the pandemic
But the question for Zoom, like many of the so-called “work-from-home” companies, remains how it will continue to exceed investors’ expectations? We’ve already seen Zoom’s stock price fall from $500.11 on Nov. 6 to $376.01 on Nov. 10, the day after Pfizer and BioNTech announced that their joint COVID-19 vaccine was 90% effective in testing.
Zoom’s stock took an additional hit on Nov. 30, when it reported its Q3 2021 earnings. Despite quartly revenue exploding 367% year-over-year, investors and analysts were apparently hoping for even greater growth — the stock fell 13% by the end of trading the next day.
What happens then, when the world is once again able to meet in person without restrictions? According to Zoom, the answer is turning the video chat service into a platform with multiple capabilities, including its OnZoom events service that allows customers to host virtual gatherings for everything from seminars on how to publish a book to meditation to the proper ways to use kitchen knives.
The company is also adding capabilities for third-party apps to be plugged into the video service including the likes of Slack (WORK), Box (BOX), and Dropbox (DBX). And Zoom has also launched its own software development kit so developers can implement Zoom features in their own apps.
Mizuho Securities managing director Siti Panigrahi says Zoom is well positioned to continue performing well, albeit without such ridiculous growth rates, far into the future.
“Zoom is not a transaction type of software, which means it’s not usage based, rather it’s monthly subscription based,” Panigrahi explained. “That means, even if in a post-vaccine world, we’re back to work in a new normal environment, it’s not going to be 100% like the way it was in January, February this year. So it’ll be a hybrid environment.”
In such an environment, Panigrahi said, companies will still need to subscribe to Zoom, even if their employees use it far less than they used to.
“Even if the number of minutes on Zoom might go down, the need for Zoom will still be there — it’s going to be a necessary tool.”
It’s still too early to tell how far Zoom’s ambitions will take it, but for now, the company has proven itself to be a formidable force in a year of unpredictability.
Correction: A previous version of this story incorrectly stated Zoom's Q3 revenue and user growth. The error has been corrected.
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