Beyond impressive fiscal first-quarter results, Zoom Video Communications (NASDAQ: ZM) should sustain strong growth by expanding its core video capabilities to accommodate communications in hybrid work environments. But besides those encouraging developments, an important comment from CEO Eric Yuan during the earnings call surprisingly remained unnoticed.
Spectacular results, again
With no doubt, the coronavirus-induced lockdowns boosted Zoom's business over the last several quarters, as the world turned to online tools to work and communicate from home. And that remained true during the fiscal first quarter, which ended on April 30. Revenue increased 191% year over year to $956 million, thanks to the widespread demand for the company's products across all geographies and industries.
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What's more, as an illustration of the increased confidence in the company's solutions for large-scale deployments, the number of customers generating more than $100,000 in trailing-12-month revenue increased 160% year over year to 1,999.
Going forward, Zoom will be leveraging its core video solutions to build a broader communications platform and generate cross-selling opportunities. For instance, it has been developing a phone business, an apps platform, and event capabilities that will expand its ecosystem and sustain revenue growth.
Given such strong results and attractive prospects, management raised its full-year revenue outlook to a range of $3.975 billion to $3.990 billion, which corresponds to a 50% year-over-year growth.
A logical expansion
Interestingly, an important comment from Yuan during the earnings call didn't catch much attention. Following a question from an analyst about contact centers, he said:
When it comes to contact center, this is part of our UC platform, right? And that's the reason why I mention the Zoomtopia and scheduled at September 13 and 14. So stay tuned. You will see something. Hopefully, we can do something around the contact center.
Contact centers represent a logical extension of communication solutions. Indeed, these systems integrate with audio and video capabilities for customers to communicate with enterprises. So far, Zoom partnered with contact center providers, such as Five9, to integrate their solutions with its products. And over the last several quarters, Yuan repeated the importance of such partnerships, without revealing any other development in that area.
Thus, Yuan's new and somewhat vague comment about contact centers triggered my attention. I expect the company to finally propose its own contact center solution while still supporting its existing partnerships.
Indeed, that development fits the company's strategy to develop a communications platform, and the market opportunity seems significant. For instance, Five9 estimated the contact center software market opportunity at $24 billion.
Also, several communication vendors, such as 8x8, Avaya Holdings, and RingCentral have been highlighting the importance of integrated contact center and unified communication offerings to win some deals. Recently, 8x8 estimated such combined offerings represented a $15 billion market opportunity.
Considering Zoom's strong execution in expanding beyond its core video business, those competitors should worry. As an illustration, the company managed to sell more than 1.5 million seats of Zoom phones only two years after having launched that business. Zoom's ability to deliver strong execution together with the large market opportunity contact centers represent should lead to a significant additional growth driver going forward.
Based on the midpoint of management's full-year revenue guidance, Zoom stock is trading at a high enterprise value-to-sales ratio of 23, which means investors are already pricing in quite a lot of that growth over the next many years.
So you should pay close attention to the company's announcements around its contact center strategy during its Zoomtopia event on Sept. 13 and 14. An internally developed contact center solution combined with strong execution should help the tech stock match or even exceed investors' demanding expectations.
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