When I listen to Zoom's CEO, speak about the company, and his hyper focus on making his users happy, it makes me smile. I like when certain people, sports stars, entrepreneurs, ceos, and products cause me to have an emotional response. Something good is happening there where I want to pause, spend time with it, and try to understand it better.
I've been thinking a lot about Zoom lately. Zoom is a rare company that is in the right place at the right time, with the right product, and right management team. They've been able to accomplish what few network effect companies have been able to do. This is a rare breed that includes the likes of Google, Facebook/Instagram, Tesla, Apple (iPhone, Mac cult-like following), LinkedIn (Microsoft) [although Microsoft acquired LinkedIn and owns it along with Skype, and Teams, incredible online communication assets, I put Microsoft in parentheses because LinkedIn had achieved the network effect and user following prior to Microsoft's acquisition], WhatsApp, and maybe a few others that I'm not thinking about now. When this happens to a company, user growth is always far beyond expectations. The market has shown that humans and investors (are they different entities?) almost always fall short of predicting the growth that occurs when certain requirements are met,
1. Users love a particular product and word of mouth causes growth of users
2. Not only do the users love the product, they love it so much, that they feel some kind of emotional connection to the product. We can try to define that in other companies,
- Google - was so google and the first search engine that was exceptionally better - people loved Google - creative, unique "Better World" brand and engine that was bar-none the best.
- Facebook - connecting with friends and family stickiness from bar-none best social network software - make connections closer and open world
- Instagram - similar
- Tesla - good for environment and cult-like following, word of mouth - change the world for the better - super cult-like following to Tesla brand and founder/ceo Elon Musk
- Microsoft - legacy software company that has adapted to Web 3.0 better than any other, except perhaps Apple - Microsoft built and acquired key online communication assets with exceptional user growth,
- Apple - cult-like following due to best in breed software stemming from trickle down of Steve Jobs effect - still best built software and hardware, though Microsoft, with Surface starting to compete effectively.
- Zoom - people of all ages need to communicate with video, audio and text and Zoom has built a superior, easiest to use, product, even compared to that of much larger and successful software companies. "Zoom It / Do a Zoom / Still developing branded, consumer defined, verbiage" similar to "Google It" - In an era where people cannot meet face to face, this is an unprecedented and undefinable advantage that Zoom is benefiting.
3. the public is of the right mindset that fits with the product and the times - Zoom fits this characteristic better than all the others listed above, imo.
Forecasting Revenues and Net from
- Individuals $180/yr, this is the number I believe will come in much higher than expected over the coming 12 months - this is the number that's hard to measure for investors - that number I referenced above that is beyond our grasp - because even with 10% conversions, that's $7 billion, reflecting the incredible spike of users Zoom has experienced
- Universities - 5,000 paying at $1800 per year - $9 million
- Fortune 500 - 300 at $100k+ each is $3 billion
Even if conversions from DAUs is 5%, that's $3.5 billion from individuals and so, about $10 billion in revenues. gross margin of 80% gives them $8 billion in Gross profit and $100 million net income (10% net margin).
In the past 1 month, from the low price during that month, Zoom is up only 30%. In the last 3 months, it up an impressive 100%, or 2X. The stock is forecasting that revenues and earnings will be up 200%, but growth of users in last 2 months from February to March of 1000%, 5x higher than the stock is forecasting. Even though Zoom is showing a P/E of 500, that P/E is not reflecting the growth of users month over month, and expected growth of earnings, because the growth has happened just over past 2-3 months (not sure I'm writing this clearly).
The other important advantage of building a loyal user base as demonstrated by increasing and sticky active users, is that these users will buy other related products to expand Zoom's future revenue streams and margins. The key is to build great product to gain the users, as shown in the companies listed above.
Given this, I am still an owner of Zoom long term and will continue to buy more shares on pullbacks or key breakout patterns.
This is consistent with investors and analysts typically underestimating the growth potential of a company with a strong network effect, like Zoom, and a select few other companies.
"Zoom Me!"
Joe
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