There has been perhaps no larger beneficiary of stay-at-home orders than Zoom Video Communications, which saw its stock grow over 400% in 2020, and on Monday posted its first billion-dollar quarter by revenue.
But the company, which went public about a year before the pandemic began, is now struggling to meet investor estimates and sustain its extreme growth as more in-person events resume.
In its second quarter earnings release, Zoom reported a 54% year-over-year revenue growth. In the same quarter last year, it reported 355% sales growth; now, it says it expects 31% sales growth next quarter.
Despite its continued, if smaller, successes, Zoom’s future will be filled with competition, including major players like Microsoft Teams, Cisco WebEx and Google Workspace.
On a Monday analyst call, CFO Kelly Steckelberg said Zoom must adjust as small business consumers, 36% of their revenue base, return to in-person work in greater numbers.
“This cohort, which comprises SMB and consumers who typically purchase online, is more volatile, and we expect it to continue to decline as a percentage of revenue as customers adjust to the evolving environment,” she said.
The company predicted strong growth from its direct and channel businesses and weakness in its online business, largely stemming from challenges among its smaller customers: businesses with fewer than 10 employees, which have always been a “volatile” factor in its results, she said.
But as people return to the office, Zoom is making an effort to diversify its offerings; last month, it announced its purchase of Five9, a cloud-based customer service firm, for nearly $15 billion.
“We’re seeing headwinds in our mass markets,” Steckelberg told CNBC Monday. “These are individual consumers and small businesses. They’re now moving around the world. People are taking vacations again, they’re going to happy hours in person.”
In the latter half of the second quarter, the company began to see “some additional churn,” Steckelberg added. “That’s what’s evidenced in our guidance for the rest of the year and that’s what I think you’re seeing in the reaction to the stock.”
Despite its potential to lose traction as businesses reopen their doors, many analysts nonetheless believe in Zoom’s long-term strength.
“We still believe Zoom is a very good franchise with a tremendous amount of growth in its future,” JPMorgan analyst Sterling Auty told CNBC. “But we expect the market will need to rationalize a different level of growth post-pandemic into their valuation expectations.”