Zoom Video Communications Inc Share Price | ZM | Morningstar – NVIDIA Corporation
Not surprisingly, the top referring sites were education institutes. Going by this data, it’s easy to figure out that a considerable portion of new Zoom users consists of students and educators who are forced out of their physical classrooms.
These users will virtually add next to nothing in incremental revenue for Zoom, and more importantly, converting these leads to paying subscribers won’t be an easy task either. This is because Zoom is not a specialized virtual classroom provider and this space of the industry is dominated by a few players.
I am not leaving Zoom entirely out of the equation, but investors need to remind themselves that distant learning has been there for many years and Zoom is not the company that is breaking the ground.
Next, there are reports of many people using Zoom as a replacement for their usual Friday night outings. This sounds exciting and a novel idea, but the company would be earning next to nothing from these users both in the short and long term. On March 31, Business Insider published an in-depth article about hosting a Zoom video party. That’s how viral hosting a virtual party has become, and Zoom is leading the charge. We can simply let go of these users and look on the bright side – maybe a few such users will consider using Zoom for their business meetings in the future.
But there’s another side to the story as well. A few paying subscribers of Zoom are already complaining of system glitches. For instance, there have been reports of difficulties in saving recorded calls for distribution. To add salt to the wound, there is a marked delay in responding to customer queries by the Zoom customer services department.
It’s easy to figure out why this is happening. Zoom was not ready for this surge in demand and the company is probably understaffed as well. As a paying user, this has been frustrating. It seems their sales and user growth has far outpaced the infrastructure. For an enterprise tool, this level of service will be their demise.
An investor cannot take this lightly. In addition to making life difficult for existing subscribers, these negative developments could give a bad impression to new users who are considering subscribing to a premium plan as well.
To think that Zoom is facing this backlash because of new users who have no intention of paying the company for its services ever is troubling. For sure, Zoom will convert some of the new users. But such a conversion will not be as spectacular as the markets are predicting, in my opinion. It would take a couple of quarters for us to assess this, and during this time, shares might head either higher or lower depending on how long the world will be in lockdown.
Things were going well for Zoom until a few security breaches surfaced. A few users of Zoom, including a U. Understandably, the exponential growth in the number of users has led to these incidents. The below is an excerpt from an FBI announcement dated March 31 that confirmed an investigation into this matter:.
This is the second time in a week that I’m writing about the negative impact of these regulatory crackdowns. Now, it’s Zoom that is likely to face the wrath of regulators. The troubles don’t end there for Zoom. On March 31, The Intercept reported of Zoom falsely claiming to have end-to-end encryption on its video conferencing platform.
To not have this security feature is one thing, but falsely claiming to have such features and misleading clients is another thing. A Zoom spokesperson admitted to this and said , “currently, it’s not possible to enable end-to-end encryption for Zoom video meetings.
The company, on April 2, confirmed that it will release an updated version of the Zoom application that will fix most of these privacy issues. However, Arvind Narayanan, an associate computer science professor at Princeton University, is still not convinced. He told The Guardian:. The number of security issues with Zoom in the past makes it as bad as malicious software. Let’s make this simple. Zoom is malware. In addition to all this, Zoom has been accused of selling third-party user data to tech-giants including Facebook FB , without the consent of users.
There’s only one way Zoom is going to come out of all these accusations; by investing to improve the security of all its platforms and mobile applications. This, however, will dent earnings in the short to medium term. What I’m more worried about is a dent in investor sentiment that might take months to fix.
Many more instances of privacy breaches might surface in the coming months, keeping shares from taking off. The network effect occurs when the value of a company’s service increases for both new and existing users as more people use the service. Think about Facebook for example, which is one company that benefits from the network effect. There are billions of users on Facebook, which makes it pointless for a new user to sign-up on another platform when his kith and kin would likely to use Facebook than any other social media platform out there.
This effect, on the other hand, enables the company to earn billions of dollars in advertisement revenue. Zoom is the leader of the video conferencing industry. According to the fourth-quarter earnings reports of the company, Zoom had This includes both free and paying subscribers and was helped by the surge in its popularity since the beginning of this year. The growth in the number of Zoom users has surpassed that of its competitors by a healthy margin.
Source: Investor presentation. It seems like Zoom has what it takes to benefit from the network effect. If many companies are using Zoom for video conferencing purposes, a new user might want to join the same platform in a bid to make cross-company meetings faster and easier.
However, there’s a long way to go for Zoom to financially benefit from such an effect. Switching between either one of these providers is not a difficult task and would likely cost nothing.
Because the industry is still young, any one of these companies could aggressively gain market share, especially if Zoom fails to keep up with the current regulatory challenges. In the absence of meaningful switching costs, tech giants such as Microsoft could easily improve their services offering and the quality of the platform to quickly become the industry leader. As investors, we need to discount Zoom’s target price by an amount that is sufficient to reflect this risk. This might feel like the best time to be investing in a company that facilitates video conferencing while the world is in lockdown.
Better yet, on the company that is leading the charge. However, I beg to differ. I have used Zoom twice, and I have to admit that the ease of using its platform impressed me a lot. Microsoft Teams failed to leave the same impression on me in the one time I used it. I’m sure many of the new users of Zoom are feeling the same.
But there’s reason to believe that Zoom is headed toward rough seas. The company has to navigate the regulatory pressure to start with. Second, Zoom needs to improve its operating capabilities to satisfy both new and existing clients.
To do this, the company will likely hire new support staff and incur costs to optimize its servers to function without any lags. However, even the company management is not sure how many of these new users can be converted into paying subscribers. In terms of our results in Slide 4, Q4, we did not see any impact directly related to coronavirus and as a reminder we have definitely seen an uptick in usage. But a lot of that is on the free side. So it’s very early to tell whether or not that’s going to convert long-term into paying customers.
As we mentioned, we are seeing impact and if continue to build capacity to ensure that we can support this increased usage. So we are seeing impact on our gross margins, which is why we’re guiding you towards the lower end of our range for next year.
We provide a consolidated, intuitive interface for video, voice, chat and content sharing that can be easily navigated even by first time users. We enable calendar integration, easy synchronization with conference room equipment and feature parity across devices. Our cloud-native platform is easy to deploy and manage by both IT administrators and business users, even when integrating with existing infrastructure. Our platform removes the need for the integration of disparate communications tools, product-specific knowledge and high-touch user support and troubleshooting.
Our platform drives higher employee engagement and improved collaboration, resulting in increased organizational productivity. Switching to our platform also reduces the costs associated with expensive on-premises infrastructure and continual maintenance. Our cloud-native platform was purpose-built to scale with organizations as they grow in size and complexity. Our platform delivers the highest quality experience for organizations of all sizes and for meetings, whether with two or thousands of users.
Our platform integrates with cloud software applications provided by companies such as Atlassian, Dropbox, Google, LinkedIn, Microsoft, salesforce. We also have an ecosystem of hardware partners through which we deploy our Zoom Rooms and Conference Room Connector offerings. Customers can subscribe to our communications platform based on the number of hosts that they require on a month-to-month basis or purchase one- to multi-year subscriptions.
Our Competitive Strengths. We believe that we have a number of competitive advantages that will enable us to maintain and extend our leadership in communications. Our competitive strengths include:. Video-first cloud architecture. We built our platform from the ground up to be cloud-native and video-first, unlike other approaches that have attempted to add video to an aging, pre-existing conference call or chat tool. Our unique architecture was built by our talented team, led by a founding group of engineers who have extensive expertise in real-time communications technology.
A recognized market leader. We have been recognized by industry analysts as a market leader. Viral demand driven by individual users. Our rapid adoption is driven by a virtuous cycle of positive user experiences. Individuals typically begin using our platform when a colleague or associate invites them to a Zoom meeting.
When attendees experience our platform and realize the benefits, they often become paying customers to unlock additional functionality. Growing base of happy customers. We believe that making and keeping users happy is critical to growing our business. We believe that our customer NPS, which averaged over 70 in , demonstrates that our high-quality, easy-to-use platform is making customers happy. We have a multipronged go-to-market strategy that integrates the viral enthusiasm for our platform with optimal routes-to-market that match the size of the customer opportunity.
Our direct sales force and strategic partners sell to customers of all sizes, and we leverage our online sales channel for smaller customers. Robust customer support and success function.
Our Culture of Happiness. Our culture of delivering happiness drives our mission, vision and values and is fundamental to everything we do at Zoom:. Our vision is to empower people to accomplish more through video communications. We care for our community, our customers, our company, our teammates and ourselves. This culture supports our hiring and serves as a competitive advantage in attracting and retaining top talent.
Our Market Opportunity. Video has increasingly become the way that individuals want to communicate in the workplace and their daily lives. We believe we address a broader opportunity than is currently captured in third-party market research because once our customers begin to experience the benefits of our video-first communications platform, they tend to greatly expand their use of video throughout their organizations.
As a result, we expect that use of our platform will significantly increase the penetration of video communications across a broad range of customer types and use cases. Our Growth Strategy. We focus on the following elements of our strategy to drive our growth:. Table of Contents Summary Risk Factors. These risks include, among others:. Our business depends on our ability to attract new customers and hosts, retain and upsell additional products to existing customers and upgrade free hosts to our paid offerings.
Any decline in new customers and hosts, renewals or upgrades would harm our business;. We have a limited operating history, which makes it difficult to evaluate our prospects and future results of operations;. We operate in competitive markets, and we must continue to compete effectively;. We may not be able to sustain our revenue growth rate in the future;. Interruptions, delays or outages in service from our co-located data centers and a variety of other factors would impair the delivery of our services, require us to issue credits or pay penalties and harm our business;.
Failures in internet infrastructure or interference with broadband access could cause current or potential users to believe that our systems are unreliable, possibly leading our customers and hosts to switch to our competitors or to cancel their subscriptions to our platform;.
As we increase sales to large organizations, our sales cycles could lengthen, and we could experience greater deployment challenges;. We generate revenue from sales of subscriptions to our platform, and any decline in demand for our platform or for communications and collaboration technologies in general would harm our business;. The experience of our users depends upon the interoperability of our platform across devices, operating systems and third-party applications that we do not control, and if we are not able to maintain and expand our relationships with third parties to integrate our platform with their solutions, our business may be harmed;.
We may not be able to respond to rapid technological changes, extend our platform or develop new features; and. The dual class structure of our common stock as contained in our amended and restated certificate of incorporation has the effect of concentrating voting control with those stockholders who held our stock prior to this offering, including our executive officers, employees and directors and their affiliates, limiting your ability to influence corporate matters.
Corporate Information. We were incorporated under the laws of the state of Delaware in April under the name Saasbee, Inc. Our telephone number is Information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider information on our website to be part of this prospectus.
Other trade names, trademarks and service marks used in this prospectus are the property of their respective owners. An emerging growth company may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:. We may take advantage of these provisions until the last day of our fiscal year following the fifth anniversary of the date of the first sale of our Class A common stock in this offering.
We have elected to take advantage of certain of the reduced disclosure obligations in the registration statement of which this prospectus is a part and may elect to take advantage of other reduced reporting requirements in future filings.
As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.
This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption, and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Class A common stock offered by us. Class A common stock offered by the selling stockholders. Class A common stock sold by us in the concurrent private placement. Immediately subsequent to the closing of this offering, Salesforce Ventures LLC will purchase from us in a private placement 2,, shares of our Class A common stock.
We will receive the full proceeds and will not pay any underwriting discounts or commissions with respect to the shares that are sold in the private placement. The sale of the shares in the private placement is contingent upon the completion of this offering.
The sale of these shares to Salesforce Ventures LLC will not be registered in this offering and will be subject to a market standoff agreement with us for a period of up to days after the date of this prospectus and a lock-up agreement with the underwriters for a period of up to days after the date of this prospectus. We refer to the private placement of these shares of Class A common stock as the concurrent private placement. Class A common stock to be outstanding after this offering and the concurrent private placement.
Class B common stock to be outstanding after this offering and the concurrent private placement. Total Class A and Class B common stock to be outstanding after this offering and the concurrent private placement. Over-allotment option of Class A common stock offered by us.
Voting rights. The holders of our outstanding Class B common stock will hold These holders will have the ability to control the outcome of matters submitted to our shareholders for approval, including the election of our directors and the approval of any change of control transaction. Use of proceeds. We currently intend to use the net proceeds we receive from this offering and the concurrent private placement for general corporate purposes, including working capital, operating expenses and capital expenditures.
We may also use a portion of the net proceeds for acquisitions or strategic investments in complementary businesses, products, services or technologies, although we do not currently have any plans or commitments for any such acquisitions or investments. We will not receive any proceeds from the sale of shares of Class A common stock by the selling stockholders. Proposed Nasdaq trading symbol. The number of shares of our common stock that will be outstanding after this offering and the concurrent private placement is based on , shares of our Class A common stock including the conversion of convertible promissory notes and ,, shares of our Class B common stock including the conversion of preferred stock outstanding as of January 31, and excludes:.
Upon the execution and delivery of the underwriting agreement related to this offering, any remaining shares available for issuance under our Fourth Amended and Restated Global Share Plan Plan will become reserved for future issuance as Class A common stock under our Plan, and we will cease granting awards under our Plan. Unless otherwise indicated, the information in this prospectus assumes:.
The following summary consolidated statements of operations data for the years ended January 31, , and and the consolidated balance sheet data as of January 31, have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future. The last day of our fiscal year is January Consolidated Statements of Operations Data:. Cost of revenue 1. Gross profit.
Operating expenses:. Research and development 1. Sales and marketing 1. General and administrative 1. Total operating expenses. Income loss from operations. Interest income, net. Other income, net. Net income loss before provision for income taxes. Provision for income taxes. Net income loss. Distributed earnings attributable to participating securities 2. Undistributed earnings attributable to participating securities.
Net income loss attributable to common stockholders 2. Net income loss per share attributable to common stockholders. Weighted-average shares used in computing net income loss per share attributable to common stockholders. Pro forma net income per share attributable to common stockholders.
Weighted-average shares used in computing pro forma net income per share attributable to common stockholders. Includes stock-based compensation expense as follows:.
Cost of revenue. Research and development. Sales and marketing. General and administrative. Total stock-based compensation expense. In the years ended January 31, and , we repurchased 4,, and 1,, shares, respectively, of Series A convertible preferred stock from certain existing investors. The amount paid in excess of the carrying value of the Series A convertible preferred stock is considered a deemed dividend and is reflected as distributed earnings attributable to participating securities in the calculation of net loss attributable to common stockholders.
See Note 7 to our consolidated financial statements included elsewhere in this prospectus for more information. Consolidated Balance Sheet Data:. Cash and cash equivalents. Marketable securities. Working capital. Total assets. Deferred revenue, current and non-current.
Convertible promissory notes, net. Convertible preferred stock. Accumulated deficit. Investing in our Class A common stock involves a high degree of risk. Our business, results of operations, financial condition and prospects could also be harmed by risks and uncertainties that are not presently known to us or that we currently believe are not material.
If any of the risks actually occur, our business, results of operations, financial condition and prospects could be materially and adversely affected. Unless otherwise indicated, references to our business being harmed in these risk factors will include harm to our business, platform, reputation, brand, financial condition, results of operations and future prospects. In such event, the market price of our Class A common stock could decline, and you could lose all or part of your investment.
Any decline in new customers and hosts, renewals or upgrades would harm our business. Our business depends upon our ability to attract new customers and hosts and maintain and expand our relationships with our customers and hosts, including upselling additional products to our existing customers and upgrading hosts to a paid Zoom Meeting plan.
A host is any user of our video-first communications platform who initiates a Zoom Meeting and invites one or more participants to join that meeting. Our business is subscription based, and customers are not obligated to and may not renew their subscriptions after their existing subscriptions expire.
As a result, we cannot provide assurance that customers will renew their subscriptions utilizing the same tier of their Zoom Meeting plan, upgrade to a higher-priced tier or purchase additional products, if they renew at all.
Renewals of subscriptions to our platform may decline or fluctuate because of several factors, such as dissatisfaction with our products and support, a customer or host no longer having a need for our products, or the perception that competitive products provide better or less expensive options.
In addition, some customers downgrade their Zoom Meeting plan or do not renew their subscriptions. We must continually add new customers and hosts to grow our business beyond our current user base and to replace customers and hosts who choose not to continue to use our platform. Any decrease in user satisfaction with our products or support would harm our brand, word-of-mouth referrals and ability to grow. We encourage customers to purchase additional products and encourage hosts to upgrade to our paid offerings by recommending additional features and through in-product prompts and notifications.
Additionally, we seek to expand within organizations by adding new hosts, having workplaces purchase additional products, or expanding the use of Zoom into other teams and departments within an organization.
At the same time, we strive to demonstrate the value of our platform and various product offerings to those hosts that subscribe to our free Zoom Meeting plan, thereby encouraging them to upgrade to a paid Zoom Meeting plan. However, a majority of these hosts may never upgrade to a paid Zoom Meeting plan. If we fail to upsell our customers or upgrade hosts of our free Zoom Meeting plan to a paid subscription or expand the number of paid hosts within organizations, our business would be harmed.
In addition, our user growth rate may slow in the future as our market penetration rates increase and we turn our focus to upgrading our free hosts to a paid Zoom Meeting plan rather than growing the total number of users. If we are not able to continue to expand our user base or fail to upgrade our free hosts to a paid Zoom Meeting plan, our revenue may grow more slowly than expected or decline.
Table of Contents We have a limited operating history, which makes it difficult to evaluate our prospects and future results of operations. We were incorporated in As a result of our limited operating history, our ability to forecast our future results of operations is limited and subject to a number of uncertainties, including our ability to plan for and model future growth. Our historical revenue growth should not be considered indicative of our future performance.
Further, in future periods, our revenue growth could slow or our revenue could decline for a number of reasons, including any reduction in demand for our platform, increased competition, contraction of our overall market, our inability to accurately forecast demand for our platform and plan for capacity constraints or our failure, for any reason, to capitalize on growth opportunities. We have encountered and will encounter risks and uncertainties frequently experienced by growing companies in rapidly changing industries, such as the risks and uncertainties described herein.
If our assumptions regarding these risks and uncertainties, which we use to plan our business, are incorrect or change, or if we do not address these risks successfully, our business would be harmed.
We operate in competitive markets, and we must continue to compete effectively. The market for communication and collaboration technologies platforms is competitive and rapidly changing.
Certain features of our current platform compete in the communication and collaboration technologies market with products offered by:.
Other large established companies like Amazon and Facebook have in the past and may in the future also make investments in video communications tools.
In addition, as we introduce new products and services, and with the introduction of new technologies and market entrants, we expect competition to intensify in the future. For example, we recently introduced Zoom Phone, a cloud phone system that will allow customers to replace their existing private branch exchange solution, in the future, which will result in increased competition against companies that offer similar services and new competitors that may enter that market in the future.
Further, many of our actual and potential competitors benefit from competitive advantages over us, such as greater name recognition, longer operating histories, more varied products and services, larger marketing budgets, more established marketing relationships, third-party integration, greater accessibility across devices or applications, access to larger user bases, major distribution agreements with hardware manufacturers and resellers, and greater financial, technical and other resources.
Some of our competitors may make acquisitions or enter into strategic relationships to offer a broader range of products and services than we do. These combinations may make it more difficult for us to compete effectively. We expect these trends to continue as competitors attempt to strengthen or maintain their market positions. Demand for our platform is also price sensitive. Certain competitors offer, or may in the future offer, lower-priced or free products or services that compete with our platform or may bundle and offer a broader range of products and services.
Similarly, certain competitors may use marketing strategies that enable them to acquire customers at a lower cost than we can. Furthermore, third parties could build products similar to ours that rely on open source software. Even if such products do not include all the features and functionality that our platform provides, we could face pricing pressure from these third parties to the extent that users find such alternative products to be sufficient to meet their video communications needs.
There can be no assurance that we will not be forced to engage in price-cutting initiatives or other discounts or to increase our marketing and other expenses to attract and retain customers in response to competitive pressures, either of which would harm our business. Table of Contents We may not be able to sustain our revenue growth rate in the future. We have experienced significant revenue growth in prior periods.
You should not rely on the revenue growth of any prior quarterly or annual period as an indication of our future performance. We expect our revenue growth rate to decline in future periods. Many factors may contribute to declines in our growth rate, including higher market penetration, increased competition, slowing demand for our platform, a failure by us to continue capitalizing on growth opportunities and the maturation of our business, among others.
Interruptions, delays or outages in service from our co-located data centers and a variety of other factors would impair the delivery of our services, require us to issue credits or pay penalties and harm our business.
We also utilize Amazon Web Services and Microsoft Azure for the hosting of certain critical aspects of our business. As part of our distributed meeting architecture, we establish private links between data centers that automatically transfer data between various data centers in order to optimize performance on our platform.
Damage to, or failure of, these data centers has in the past resulted in and could in the future result in interruptions or delays in our services. In addition, we have experienced, and may in the future experience, other interruptions and delays in our services caused by a variety of other factors, including but not limited to infrastructure changes, vendor issues, human or software errors, viruses, security attacks, fraud, general internet availability issues, spikes in usage and denial of service issues.
In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. For example, in January , we experienced an outage in our services for less than two hours, which we later determined was initially caused by a technical issue with one of our vendors.
Despite precautions that we take during this process, any unsuccessful data transfers may impair or cause disruptions in the delivery of our service, and we may incur significant costs in connection with any such move or transfer. Interruptions, delays or outages in our services would reduce our revenue, may require us to issue credits or pay penalties, may subject us to claims and litigation, may cause customers and hosts to terminate their subscriptions and adversely affect our ability to attract new customers and hosts.
Our ability to attract and retain customers and hosts depends on our ability to provide customers and hosts with a highly reliable platform and even minor interruptions or delays in our services could harm our business. Additionally, if our data centers are unable to keep up with our increasing needs for capacity, customers may experience delays as we seek to obtain additional capacity, which could harm our business. We do not control, or in some cases have limited control over, the operation of the co-located data center facilities we use, and they are vulnerable to damage or interruption from human error, intentional bad acts, earthquakes, floods, fires, hurricanes, war, terrorist attacks, power losses, hardware failures, systems failures, telecommunications failures and similar events, any of which could disrupt our service.
In the event of significant physical damage to one of these data centers, it may take a significant period of time to achieve full resumption of our services, and our disaster recovery planning may not account for all eventualities. Despite precautions taken at these facilities, the occurrence of a natural disaster, an act of terrorism or other act of malfeasance, a decision to close the facilities without adequate notice or other unanticipated problems at the facilities would harm our business.
Failures in internet infrastructure or interference with broadband access could cause current or potential users to believe that our systems are unreliable, possibly leading our customers and hosts to switch to our competitors or to cancel their subscriptions to our platform. Table of Contents Increasing numbers of users and increasing bandwidth requirements may degrade the performance of our platform due to capacity constraints and other internet infrastructure limitations.
As our number of users grows and their usage of communications capacity increases, we will be required to make additional investments in network capacity to maintain adequate data transmission speeds, the availability of which may be limited, or the cost of which may be on terms unacceptable to us.
If adequate capacity is not available to us as our user base grows, our network may be unable to achieve or maintain sufficiently high data transmission capacity, reliability or performance. In addition, if internet service providers and other third parties providing internet services have outages or deteriorations in their quality of service, our users will not have access to our platform or may experience a decrease in the quality of our platform.
Furthermore, as the rate of adoption of new technologies increases, the networks our platform relies on may not be able to sufficiently adapt to the increased demand for these services, including ours. Frequent or persistent interruptions could cause current or potential users to believe that our systems or platform are unreliable, leading them to switch to our competitors or to avoid our platform, and could permanently harm our business.
In addition, users who access our platform through mobile devices, such as smartphones and tablets, must have a high-speed connection, such as 3G, 4G or LTE, satellite or Wi-Fi to use our services and applications. Currently, this access is provided by companies that have significant and increasing market power in the broadband and internet access marketplace, including incumbent phone companies, cable companies, satellite companies and wireless companies.
Some of these providers offer products and subscriptions that directly compete with our own offerings, which can potentially give them a competitive advantage.
Also, these providers could take measures that degrade, disrupt or increase the cost of user access to third-party services, including our platform, by restricting or prohibiting the use of their infrastructure to support or facilitate third-party services or by charging increased fees to third parties or the users of third-party services, any of which would make our platform less attractive to users and reduce our revenue. On January 4, , the Federal Communications Commission FCC released an order reclassifying broadband internet access as an information service, subject to certain provisions of Title I of the Communications Act.
The order requires broadband providers to publicly disclose accurate information regarding network management practices, performance characteristics and commercial terms of their broadband internet access services sufficient to enable consumers to make informed choices regarding the purchase and use of such services and entrepreneurs and other small businesses to develop, market and maintain internet offerings.
The new rules went into effect on June 11, and are the subject of various appeals and congressional review. Moreover, a number of states are adopting or considering legislation or executive actions that would regulate the conduct of broadband providers.
We cannot predict whether the FCC order or state initiatives will be modified, overturned, or vacated by legal action of the court, federal legislation, or the FCC. Under the new rules, broadband internet access providers may be able to charge web-based services such as ours for priority access, which could result in increased costs and a loss of existing customers and hosts, impair our ability to attract new customers and hosts, and harm our business.
As we increase sales to large organizations, our sales cycles could lengthen, and we could experience greater deployment challenges. As our business evolves, we may need to invest more resources into sales to large organizations. Large organizations typically undertake a significant evaluation and negotiation process due to their leverage, size, organizational structure and approval requirements, all of which can lengthen our sales cycle.
We may also face unexpected deployment challenges with large organizations or more complicated deployment of our platform. Large organizations may demand additional features, support services and pricing concessions or require additional security management or control features.
We may spend substantial time, effort and money on sales efforts to large organizations without any assurance that our efforts will produce any sales or that these customers will deploy our platform widely enough across their organization to justify our substantial upfront investment.
As a result, we anticipate increased sales to large organizations will lead to higher upfront sales costs and greater unpredictability in our business, results of operations and financial condition. Table of Contents We generate revenue from sales of subscriptions to our platform, and any decline in demand for our platform or for communications and collaboration technologies in general would harm our business.
We generate, and expect to continue to generate, revenue from the sale of subscriptions to our platform. As a result, widespread acceptance and use of communications and collaboration technologies in general, and our platform in particular, is critical to our future growth and success. If the communications and collaboration technologies market fails to grow or grows more slowly than we currently anticipate, demand for our platform could be negatively affected.
Changes in user preferences for communications and collaboration technologies may have a disproportionately greater impact on us than if we offered multiple platforms or disparate products.
Demand for communications and collaboration technologies in general, and our platform in particular, is affected by a number of factors, many of which are beyond our control. Some of these potential factors include:. The communications and collaboration technologies market is subject to rapidly changing user demand and trends in preferences. If we fail to successfully predict and address these changes and trends, meet user demands or achieve more widespread market acceptance of our platform, our business would be harmed.
The experience of our users depends upon the interoperability of our platform across devices, operating systems and third-party applications that we do not control, and if we are not able to maintain and expand our relationships with third parties to integrate our platform with their solutions, our business may be harmed.
One of the most important features of our platform is its broad interoperability with a range of diverse devices, operating systems and third-party applications. We also have integrations with Atlassian, Dropbox, Google, LinkedIn, Microsoft, Salesforce, Slack and a variety of other productivity, collaboration, data management and security vendors. We are dependent on the accessibility of our platform across these and other third-party operating systems and applications that we do not control.
For example, given the broad adoption of Microsoft Office and other productivity software, it is important that we are able to integrate with this software. Several of our competitors own, develop, operate, or distribute operating systems, app stores, co-located data center services and other software, and also have material business relationships with companies that own, develop, operate or distribute operating systems, applications markets, co-located data center services and other software that our platform requires in order to operate.
Moreover, some of these competitors have inherent advantages developing products and services that more tightly integrate with their software and hardware platforms or those of their business partners. Table of Contents Third-party services and products are constantly evolving, and we may not be able to modify our platform to assure its compatibility with that of other third parties following development changes. In addition, some of our competitors may be able to disrupt the operations or compatibility of our platform with their products or services, or exert strong business influence on our ability to, and terms on which we, operate and distribute our platform.
For example, we currently offer products that directly compete with several large technology companies that we rely on to ensure the interoperability of our platform with their products or services.
As our respective products evolve, we expect this level of competition to increase. Should any of our competitors modify their products or standards in a manner that degrades the functionality of our platform or gives preferential treatment to competitive products or services, whether to enhance their competitive position or for any other reason, the interoperability of our platform with these products could decrease and our business could be harmed. For example, our Zoom Meetings product integrates with tools offered by companies such as Atlassian and Dropbox to help teams get more done together.
We may not be able to respond to rapid technological changes, extend our platform or develop new features. The communications and collaboration technologies market is characterized by rapid technological change and frequent new product and service introductions.
Our ability to grow our user base and increase revenue from customers will depend heavily on our ability to enhance and improve our platform, introduce new features and products and interoperate across an increasing range of devices, operating systems and third-party applications. Our customers may require features and capabilities that our current platform does not have.
We invest significantly in research and development, and our goal is to focus our spending on measures that improve quality and ease of adoption and create organic user demand for our platform. There is no assurance that our enhancements to our platform or our new product experiences, features or capabilities will be compelling to our users or gain market acceptance. If our research and development investments do not accurately anticipate user demand, or if we fail to develop our platform in a manner that satisfies user preferences in a timely and cost-effective manner, we may fail to retain our existing users or increase demand for our platform.
The introduction of new products and services by competitors or the development of entirely new technologies to replace existing offerings could make our platform obsolete or adversely affect our business, results of operations and financial condition. We may experience difficulties with software development, design or marketing that could delay or prevent our development, introduction, or implementation of new product experiences, features, or capabilities.
We have in the past experienced delays in our internally planned release dates of new features and capabilities, and there can be no assurance that new product experiences, features or capabilities will be released according to schedule. Any delays could result in adverse publicity, loss of revenue or market acceptance, or claims by users brought against us, all of which could harm our business.
Moreover, new productivity features to our platform may require substantial investment, and we have no assurance that such investments will be successful. If customers and hosts do not widely adopt our new product experiences, features and capabilities, we may not be able to realize a return on our investment.
If we are unable to develop, license or acquire new features and capabilities to our platform on a timely and cost-effective basis, or if such enhancements do not achieve market acceptance, our business would be harmed. The failure to effectively develop and expand our marketing and sales capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our platform.
Our ability to increase our customer and host base and achieve broader market acceptance of our products and services will depend to a significant extent on our ability to expand our marketing and sales operations. We plan to continue expanding our sales force and strategic partners, both domestically and internationally. Table of Contents Identifying and recruiting qualified sales representatives and training them is time-consuming and resource-intensive, and they may not be fully trained and productive for a significant amount of time.
We also plan to dedicate significant resources to sales and marketing programs, including internet and other online advertising. Further, we are currently recruiting a new Head of Worldwide Sales or role with similar responsibility, which will require significant management time and resources. All of these efforts will require us to invest significant financial and other resources.
In addition, the cost to acquire customers and hosts is high due to these marketing and sales efforts. Our business will be harmed if our efforts do not generate a correspondingly significant increase in revenue. We will not achieve anticipated revenue growth from expanding our sales force if we are unable to hire, develop and retain talented sales personnel, if our new sales personnel are unable to achieve desired productivity levels in a reasonable period of time or if our sales and marketing programs are not effective.
Our security measures have on occasion, in the past, been, and may in the future be, compromised. Consequently, our products and services may be perceived as not being secure. This perception may result in customers and hosts curtailing or ceasing their use of our products, our incurring significant liabilities and our business being harmed.
Our operations involve the storage and transmission of customer data or information, and security incidents have occurred in the past, and may occur in the future, resulting in unauthorized access to, loss of or unauthorized disclosure of this information, regulatory enforcement actions, litigation, indemnity obligations and other possible liabilities, as well as negative publicity, which could damage our reputation, impair our sales and harm our business.
Cyberattacks and other malicious internet-based activity continue to increase, and cloud-based platform providers of products and services have been and are expected to continue to be targeted. Despite significant efforts to create security barriers to such threats, it is virtually impossible for us to entirely mitigate these risks.
If our security measures are compromised as a result of third-party action, employee, customer, host or user error, malfeasance, stolen or fraudulently-obtained log-in credentials or otherwise, our reputation would be damaged, our data, information or intellectual property, or those of our customers, may be destroyed, stolen or otherwise compromised, our business may be harmed and we could incur significant liability.
We have not always been able in the past and may be unable in the future to anticipate or prevent techniques used to obtain unauthorized access or to compromise our systems because they change frequently and are generally not detected until after an incident has occurred.
Additionally, in , a cybersecurity company discovered a vulnerability in our software that could be exploited by hackers to exert certain meeting controls. While we were able to deploy updates to the software addressing these vulnerabilities and we are not aware of any customers being affected or meetings compromised by these vulnerabilities, customers are responsible for installing this update to the software and their software is subject to these vulnerabilities until they do so.
Additionally, we cannot be certain that we will be able to address any vulnerabilities in our software that we may become aware of in the future.
We expect similar issues to arise in the future as we continue to expand the features and functionality of existing products and introduce new products, and we expect to expend significant resources in an effort to protect against security incidents.
Concerns regarding privacy, data protection and information security may cause some of our customers and hosts to stop using our solutions and fail to renew their subscriptions. This discontinuance in use or failure to renew could substantially harm our business. Further, as we rely on third-party and public-cloud infrastructure, we depend in part on third-party security measures to protect against unauthorized access, cyberattacks and the mishandling of data and information.
In addition, a cybersecurity event could result in significant increases in costs, including costs for remediating the effects of such an event, lost revenue due to network downtime, and a decrease in customer, host and user trust, increases in insurance. Table of Contents premiums due to cybersecurity incidents, increased costs to address cybersecurity issues and attempts to prevent future incidents, and harm to our business and our reputation because of any such incident.
Many governments have enacted laws requiring companies to provide notice of data security incidents involving certain types of personal data.
In addition, some of our customers require us to notify them of data security breaches. Security compromises experienced by our competitors, by our customers or by us may lead to public disclosures, which may lead to widespread negative publicity.
In addition, we have a high concentration of research and development personnel in China, which could expose us to market scrutiny regarding the integrity of our solution or data security features. Any security compromise in our industry, whether actual or perceived, could harm our reputation, erode confidence in the effectiveness of our security measures, negatively affect our ability to attract new customers and hosts, cause existing customers to elect not to renew their subscriptions or subject us to third-party lawsuits, regulatory fines or other action or liability, which could harm our business.
There can be no assurance that any limitations of liability provisions in our subscription agreements would be enforceable or adequate or would otherwise protect us from any such liabilities or damages with respect to any particular claim.
We also cannot be sure that our existing general liability insurance coverage and coverage for cyber liability or errors or omissions will continue to be available on acceptable terms or will be available in sufficient amounts to cover one or more large claims or that the insurer will not deny coverage as to any future claim.
The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, would harm our business. Our business depends on a strong brand, and if we are not able to maintain and enhance our brand, our ability to expand our base of users will be impaired and our business will be harmed.
We believe that our brand identity and awareness have contributed to our success and have helped fuel our efficient go-to-market strategy. We connect people through frictionless video, voice, chat and content sharing. We also believe that maintaining and enhancing the Zoom brand is critical to expanding our base of customers, hosts and users and, in particular, conveying to users and the public that the Zoom brand consists of a broad communications platform, rather than just one distinct product.
For example, if users incorrectly view the Zoom brand primarily as a video conferencing point solution or utility rather than as a platform with multiple communications solutions, then our market position may be detrimentally impacted at such time as a competitor introduces a new or better product. We anticipate that, as our market becomes increasingly competitive, maintaining and enhancing our brand may become increasingly difficult and expensive.
Any unfavorable publicity or perception of our platform or the providers of communication and collaboration technologies generally could adversely affect our reputation and our ability to attract and retain hosts. If we fail to promote and maintain the Zoom brand, including consumer and public perception of our platform, or if we incur excessive expenses in this effort, our business will be harmed.
We have a history of net losses, and we expect to increase our expenses in the future, which could prevent us from achieving or maintaining profitability. We intend to continue to expend significant funds to expand our direct sales force and marketing efforts to attract new customers and hosts, to develop and enhance our products and for general corporate purposes, including operations, hiring additional personnel, upgrading our infrastructure and expanding into new geographical markets.
To the extent we are successful in increasing our user base, we may also incur increased losses because, other than sales commissions, the costs associated with acquiring customers and hosts are generally incurred up front, while the subscription revenue is generally recognized ratably over the subscription term, which can be monthly, annual or on a multi-year basis.
Our efforts to grow our business may be costlier than we expect, and we may not be able to increase our revenue enough to offset our higher operating. Table of Contents expenses. We may incur significant losses in the future for a number of reasons, including as a result of the other risks described herein, and unforeseen expenses, difficulties, complications, delays and other unknown events. If we are unable to achieve and sustain profitability, the value of our business and Class A common stock may significantly decrease.
Furthermore, it is difficult to predict the size and growth rate of our market, customer demand for our platform, user adoption and renewal of our platform, the entry of competitive products and services, or the success of existing competitive products and services. As a result, we may not achieve or maintain profitability in future periods.
If we fail to grow our revenue sufficiently to keep pace with our investments and other expenses, our business would be harmed. We may not successfully manage our growth or plan for future growth. Since our founding in , we have experienced rapid growth.
For example, our headcount has grown to 1, full-time employees as of January 31, , with employees located both in the United States and internationally. The growth and expansion of our business places a continuous, significant strain on our management, operational and financial resources.
Further growth of our operations to support our user base, our expanding third-party relationships, our information technology systems and our internal controls and procedures may not be adequate to support our operations.
In addition, as we continue to grow, we face challenges of integrating, developing and motivating a rapidly growing employee base in various countries around the world. Certain members of our management have not previously worked together for an extended period of time, and some do not have experience managing a public company, which may affect how they manage our growth. Managing our growth will also require significant expenditures and allocation of valuable management resources.
In addition, our rapid growth may make it difficult to evaluate our future prospects. Our ability to forecast our future results of operations is subject to a number of uncertainties, including our ability to effectively plan for and model future growth. We have encountered in the past, and may encounter in the future, risks and uncertainties frequently experienced by growing companies in rapidly changing industries.
If we fail to achieve the necessary level of efficiency in our organization as it grows, or if we are not able to accurately forecast future growth, our business would be harmed. Our ability to sell subscriptions to our platform could be harmed by real or perceived material defects or errors in our platform.
The software technology underlying our platform is inherently complex and may contain material defects or errors, particularly when new products are first introduced or when new features or capabilities are released.
We have from time to time found defects or errors in our platform, and new defects or errors in our existing platform or new products may be detected in the future by us or our users. There can be no assurance that our existing platform and new products will not contain defects.
Any real or perceived errors, failures, vulnerabilities, or bugs in our platform could result in negative publicity or lead to data security, access, retention or other performance issues, all of which could harm our business. The costs incurred in correcting such defects or errors may be substantial and could harm our business.
Moreover, the harm to our reputation and legal liability related to such defects or errors may be substantial and would harm our business. We also utilize hardware purchased or leased and software and services licensed from third parties to offer our platform.
– Zoom technical analysis – none:
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Preview: What to Expect From Zoom’s Earnings on Monday
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