Cloud Stocks: Zoom Investing in Security

Online video conferencing player Zoom Video Communications (Nasdaq: ZM) continues to benefit from the ongoing global lockdown conditions. As organizations and educational institutions struggle to open doors in-person, video and audio conferences remain an active mode of collaboration, translating to Zoom’s rapid revenue increase.

Zoom’s Financials

Revenues for the third quarter grew 367% to $777.2 million, shattering the market’s forecast of $694 million. Excluding items, Zoom reported an EPS of $0.99, again beating analysts’ estimate of $0.76.

Among key metrics, Zoom now has more than 433,700 customers with more than 10 employees, recording a growth of 485% over the year. Customers contributing more than $100,000 in trailing twelve-month revenues grew 136% to 1,289.

Zoom forecast revenues of $806-$811 million for the second quarter with an EPS of $0.77-$0.79. It expects to end the current year with revenues of $2.575-$2.58 billion and an EPS of $2.85-$2.87. The market was looking for revenues of $730.1 million and an EPS of $0.66 for the quarter.

Zoom’s Growth Focus

During the quarter, Zoom announced a partnership with Lumen, offering its product as a part of Lumen’s Unified Communication and Collaboration Suite. As part of the partnership, Lumen will provide enhanced services around Zoom’s video-first unified communications platform to their large and growing base of customers across the globe.

Together, the two companies will provide improved delivery and managed services to the customers, thus enhancing enterprise experiences throughout the customer lifecycle. The Lumen network will also allow for a more secure offering by combining its embedded network security with Zoom’s built-in security features. The feature will allow it to proactively protect customers that use the combined services.

While the global pandemic has increased the adoption of Zoom significantly, it has also exposed the market to its security issues. Zoom has been trying to address these concerns by deploying additional security features. Apart from the recent partnership with Lumen that will also strengthen security around its offering, Zoom has announced the release of its new end-to-end encryption (E2EE). E2EE is available to users globally, free and paid, for meetings with up to 200 participants. When users enable E2EE for their meetings, no one, except the participant can access the meeting. The encryption keys are locked out even to Zoom’s meeting servers.

Prior to the E2EE launch, Zoom’s cloud meeting server would generate encryption keys for the meeting and distribute them to meeting participants using Zoom clients as they join. Zoom’s E2EE now allows the meeting’s host to generate encryption keys and it uses public-key cryptography to distribute these keys to the other meeting participants. Account admins can enable this E2EE feature in their web dashboard at the account, group, and user level.

Its stock is currently trading at $406.31 with a market capitalization of $115.5 billion. It was trading at a 52-week low of $62.02 in December 2019 and soared to a record high of $588.84 in October this year. Zoom went public last April when it raised $751 million at a valuation of $9.2 billion and list price of $36. Prior to listing, Zoom had raised $160.5 million with its last private funding round being held in January 2017 where it was valued at $1 billion.