Zoom CFO explains how the company is grappling with increased demand

Key Points
  • Zoom has been adding infrastructure to meet rising needs, and it's still hiring, despite that everyone is working from home.
  • The company's video calling service is at the top of the mobile app stores.
Zoom founder Eric Yuan poses with members of his company in front of the Nasdaq building in New York as the screen shows the logo of the video-conferencing software company Zoom after the opening bell ceremony on April 18, 2019.
Kena Betancur | Getty Images

Zoom is having a moment, with students, yogis, religious practitioners, friends and, certainly, corporate workers taking to the app to gather virtually. On Wednesday "ZOOM Cloud Meetings" topped the free charts in the Apple and Google mobile app stores in the U.S., ahead of giants like Facebook Messenger and Netflix, as well as the trendy social app TikTok.

Zoom is one of the few technology stocks that investors have supported in the past few months while the rest of the market has generally sold off as COVID-19 panic remains. The company's shares are up 74% this year, while the S&P 500 is down 21% in the biggest sell-off since the financial crisis of 2008.

With that in mind, Zoom is focused on doing whatever it takes to keep the service running reliably.

"We are really focused on ensuring we continue to deliver a reliable, high-quality experience for all of our customers, prospects, schools — everybody that's relying on us. That's what we talked about all morning long in his staff meeting," Steckelberg said, speaking of an assembly that Founder and CEO Eric Yuan had called earlier on Tuesday. "I think we all feel very proud of what we're helping enable in the organization."

Employees on Zoom's engineering operations team have been adding servers and other equipment inside every one of the company's 17 data center locations, Steckelberg said. Two more will become available this week or next week.

If one of the locations is getting swamped with networking traffic, it can send the load to the others. "In general, we architect our data centers and have built them so they run at 50% of peak capacity," Steckelberg said.

In addition to beefing up its data centers, Zoom has also been increasing its capacity with its two cloud infrastructure providers, Amazon Web Services and Microsoft Azure, Steckelberg said.

And the company is hiring engineers, as well as salespeople, despite that everyone is working from home.

"In some ways it has actually simplified the process," Steckelberg said.

It's unclear how many of Zoom's fresh masses of free users will start paying the company, but analysts smell opportunity nonetheless. "If we ... assume that 75% of the active users added YTD are incremental purely due to CV [coronavirus], the massive spike in usage YTD would suggest that Zoom could get as much as $140M in incremental revenue if customers that convert to a paid plan are retained for at least a year," Bernstein's Zane Chrane and Michelle Isaacs, who have the equivalent of a buy rating on Zoom stock, wrote in a note distributed to clients on Friday.

Executives have not been trying to hatch new pricing schemes to make the most of the usage tidal wave, Steckelberg said. The main strategy for collecting more revenue at this point, she said, is to continue to sell the Zoom Phone product that workers can use for inbound and outbound cloud-based calls. Nor has the company been thinking up new technology updates to introduce as a result of the surge, she said.

The real changes involve increased costs, but Zoom is maintaining its guidance on margins.

On March 4 Steckelberg told analysts to expect gross margins to be "at the lower end of our long term target of 80% to 82%" for its 2021 fiscal year. Even after spending to add more capacity, Zoom is still comfortable with its guidance, Steckelberg said on Tuesday.

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