Zoom’s shares rebound as company delivers solid Q1, driven by enterprise growth

(Image by Alexandra_Koch from Pixabay )

As diginomica reported back in March, Wall Street’s reaction to Zoom’s slowing growth in the Vaccine Economy was short sighted, given the ongoing structural shifts that are taking place in organizations around the world. Cloud-based collaboration is here to stay and there are plenty of companies that need to make investment decisions in the medium term - with Zoom likely being on many of their lists. 

This is evidenced by Zoom’s latest set of financial results, which showcased how much of the company’s growth is now being driven by its enterprise division. Whilst Zoom was used by most of us during the COVID-19 lockdowns, that brand recognition, combined with the introduction of new product lines, has translated into enterprise-wide sales. 

In just this quarter Zoom announced its Contact Center product, a collaboration tool called Whiteboard, and a conversational AI intelligence product called Zoom IQ for Sales. 

It seems that Wall Street’s nerves have since calmed, given that following Zoom’s financial update this week the company’s share price jumped 16%. 

The numbers put out for Q1 2023 include: 

• Total revenue of $1.073 billion, up 12% year over year

• Net income was down from $402.1 million in Q1 2022, to $315.8 million this quarter

• Zoom now has 198.900 enterprise customers, up 24% from the same quarter last fiscal year

• A trailing 12-month net dollar expansion rate for enterprise customers of 123%

Commenting on the company’s enterprise wins, Kelly Steckelberg, Zoom CFO, said:

The growth was primarily driven by strength in our Enterprise business, which saw a steady increase in customers as well as improved renewal rates year-over-year. We also saw ongoing success in Zoom Rooms and Zoom Phone, which reached 3 million seats during the quarter. Renewals in Online improved sequentially, but growth was impacted mainly by international headwinds, including the strengthening of the dollar and the Russia-Ukraine war.

Revenue from enterprise customers grew 31% year-over-year and represented 52% of total revenue, up from 45% in Q1 of FY22. The number of Enterprise customers grew 24% year-over-year to approximately 198,900. We expect revenue from Enterprise customers to become an increasingly higher percentage of total revenue over time.

Our trailing 12-month net dollar expansion rate for Enterprise customers in Q1 came in at 123%. This was in line with expectations as existing Enterprise customers continued to expand their investments in the Zoom platform, with growth rates beginning to normalize following the very high rates of expansion previously.

We saw 46% year-over-year growth in the up-market as we ended the quarter with 2,916 customers contributing more than $100,000 dollars in trailing 12 months revenue. These customers represented 24% of revenue, up from 19% in Q1 of FY22.

Products and customers

Zoom CEO Eric Yuan also commented on the company’s recent acquisition of Solvvy, which aims to strengthen Zoom’s capabilities around conversational AI in the contact center. He said: 

The nature of the customer experience is undergoing a fundamental transformation, as enterprises increasingly look to engage their customers in more exceptional, personalized, and effortless ways.

We recognize this shift and saw in Solvvy a team laser-focused on providing the very best conversational technology and empowering customer support leaders to deliver better experiences. We believe Solvvy’s technology will broaden our contact center offering with scalable self-service and AI capabilities that truly enable fast and personalized customer resolutions, improved agent productivity, and valuable insights. 

We are very excited to join forces with Solvvy and help our growing number of contact center customers set new standards for customer service.

Yuan added that a key part of Zoom’s strategy is to enable more and more business workflows within the platform, which ties into the company’s recent launches of Whiteboard and Zoom IQ for sales. He said:

These new product launches encapsulate our strategy to move into adjacent workflows, both horizontally and vertically, in order to ensure our customers are getting more and more out of our platform.

Adding some colour to the sorts of deals Zoom is doing, Yuan referenced some recent customer stories. He said: 

We are happy to share that Humana, one of the nation’s leading health and well-being companies, has expanded their relationship from Zoom meetings to include approximately 24,000 Zoom Phones to integrate voice and video in their communications platform. Thank you, Humana.

I also want to thank Avis Budget Group, a leading global provider of mobility solutions, operating three of the most recognized brands in their industry through Avis, Budget and Zipcar, for expanding from being a Zoom Meetings and Zoom Rooms customer to being a broader UCaaS customer. They continue to stay seamlessly connected having added approximately 10,000 Zoom Phones across many of their global offices and car rental locations.

The next two wins are very special because they demonstrate the strength of our platform offering and how the contact center is a critical component of the platform. I want to thank TeamHealth, the leading physician practice in the U.S., for their trust in Zoom. Their innovation-focused team is committed to delivering the best quality experience possible for their employees, healthcare providers, and customers.

A longstanding, avid Zoom Meetings, Zoom Webinar and Zoom Rooms customer, TeamHealth recently expanded their services with thousands of Zoom Phone licenses across their organization. And their journey did not end there. Given their seamless experience across our platform, they saw potential value in adding our Zoom Contact Center to modernize internal IT support services across their tens of thousands of employees and healthcare affiliates.

And last but certainly not least, I want to thank Franklin Covey, a leading provider of leadership, individual effectiveness, and business execution training and assessment services. Franklin Covey started as a Zoom Meetings and Zoom Events customer. In Q1, recognizing Zoom’s expansion into the contact center and proven UCaaS capabilities, they decided to deploy Zoom Phone together with Zoom Contact Center.

My take

Zoom has a great opportunity ahead of it, which is being reflected in its enterprise business. Enterprise numbers are up, deals are expanding, and the number of customers paying more than $100,000 annually is expanding. That’s a sign of a solid engine driving the company’s performance.