Zoom got workers through the pandemic. Now the company needs a second act.

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Focus on video communications

just completed what is arguably the best four-quarter result ever for a large public company.

Although the story is well known, the details are worth remembering. At the start of the pandemic, Zoom (ticker: ZM) increased its user base by 30, reaching 300 million participants in daily meetings. Last week, Zoom reported revenue of $ 956 million for the April quarter. This was up 191% from a year ago and follows three consecutive quarters of growth exceeding 350%. Talk about difficult comparisons.

Prior to the pandemic, Zoom’s best quarterly revenue was $ 167 million at the end of 2019. Over the next 18 months, Zoom’s quarterly revenue grew six-fold. This is what Tesla fans might call a ridiculous mode.

But barring nightmarish and unexpected changes in the trajectory of the pandemic, Zoom’s days of incredible growth are over. The company itself is forecasting revenue for its current fiscal year, ending January 2022, of just under $ 4 billion. That implies growth of around 50%, a far cry from the 326% growth for fiscal 2021. And for next year, fiscal 2023, the Wall Street consensus predicts growth of just 17%.

Zoom’s CFO, Kelly Steckelberg, tells me she expects a shift towards “more consistent growth with companies at this scale.”

For investors, this creates a dilemma. How do you value Zoom when it looks more like a typical growth business? So far, investors don’t seem to be using a price-to-earnings ratio. At a recent $ 339, the stock is trading at 73 times the expected earnings for fiscal 2023, and that’s after the stock’s 37% decline since last October.

On a sales multiple, stocks are trading at still high estimates of 22 times for fiscal 2023. Consider this:

RingCentral

(RNG), a former partner who is now a rival in both video conferencing and web telephony services, is expected to increase sales by 24% next year. It’s faster than Zoom, and yet RingCentral is trading for 12 times next year’s revenue, not 20 times.

Looking at Zoom’s earnings, Citi analyst Tyler Radke wrote last week that while the company continued to perform well in its core business, he was concerned about valuation. “Our main concern is what normalized growth looks like after this year,” he wrote. Radke, who has a neutral rating on Zoom shares, warns that if growth falls below 20%, the stock could be downgraded.

At this point, he thinks Zoom would be valued closer to stocks of mature companies like

Salesforce.com

(CRM),

Working day

(WDAY), and

Service now

(NOW). These stocks are trading around 40 times free cash flow in 2022, with Zoom at 57 times. “We find it hard to conclude that stocks are undervalued,” Radke wrote.

For Zoom, the challenge now is to leverage and retain the company’s greatly expanded user base. Steckelberg says Zoom’s next mission is to move from an app company – admittedly, a world-changing app – to a platform company. The idea is to get people to spend more time working on Zoom. And that means being more than a video conferencing business.

Zoom is getting good traction for Zoom Phone, its cloud-based phone service. Last week, the company announced that the service had reached 1.5 million users, up from one million in January. But this market is very competitive.

Cisco Systems

(CSCO) recently announced an agreement to market its WebEx cloud calling service to a million

AT&T

business users over the next few years. And RingCentral has entered into a distribution agreement with Deutsche Telekom. Overlooking each of them is

Microsoft

(MSFT) Teams, which has experienced strong growth and competes in the communications software market in the areas of chat, email, video conferencing and cloud-based calling.

Zoom has other irons in the fire. Later this summer, the company plans to roll out Zoom Apps, its own version of an app store, with integrations to many commonly used enterprise software applications. The company also just unveiled Zoom Events, software to help businesses organize online conferences and other virtual gatherings. The events platform will be integrated with OnZoom, an online event listing site that doesn’t appear to have gained much popularity.

Ultimately, Zoom will have to navigate the role of video conferencing in a reopened world. Businesses are starting to use their conference rooms. Religious services are again organized in person. College classes will be back on campus this fall, and New York City has said its next school year will open without any virtual options. Booking groups can even start meeting again in lounges.

It’s not that Zoom will be abandoned. Few of the CEOs I speak with expect to revert to their pre-pandemic travel schedules. But no one wants to run every meeting on a laptop screen, either.

DocuSign CEO Dan Springer says he’s a big fan of Zoom and its founder Eric Yuan, but he expects to cut back on the service himself.

“If you ask me about my use of Zoom in a year from now, I will still use it,” says Springer. “But will I use it to talk to my CFO or COO next year when they’re down the hall?” The answer is hell no.

Zoom is here to stay. But even Zoom bulls have to recognize reality. We’re all looking forward to a little less from Zoom.

Write to Eric J. Savitz at [email protected]

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