Zoom Still Needs the Little People

Zoom also managed to give a forecast that was ahead of Wall Street’s estimates for the first time in more than a year—helping the downtrodden stock pick up gains Tuesday morning despite a sharp selloff across the rest of the tech sector.

Zoom’s very roots lie in the enterprise market; the company was founded by an ex-

Cisco

executive with an idea about how to build a videoconferencing platform for businesses that could challenge that company’s WebEx offering. The result was a super-easy-to-use service that quickly became a lifeline for the masses sent home from offices at the onset of the Covid-19 pandemic.

Zoom’s “online customers”—designating those individuals and small businesses that signed up for the service without going through a Zoom sales representative or one of the company’s reseller partners—comprised 25% of its total revenue in the fiscal quarter that ended January 2020 before the pandemic’s onset. That contribution soared to 56% in a year’s time.

But that customer base is much less sticky, with cancellation involving a few clicks on a webpage as more people resumed meeting up in person. Zoom’s revenue growth from online customers has been slowing notably over the last few quarters and turned negative for the first time in the recently ended period—falling 2% year over year to about $514 million.

Analysts expect that trend to continue. Consensus estimates from Visible Alpha currently have revenue from Zoom’s online business falling for the three remaining quarters in the current fiscal year.

The company is rightly investing in sales representatives and other tools to build up a more stable enterprise base; sales and marketing expenses comprised 34% of revenue in the recently ended quarter compared with 26% in the same period the prior year. But a more rapid deterioration of the online customer base to prepandemic levels would still put pressure on Zoom’s top line.

Then again, Zoom’s stock price is down more than 48% for the year—and 83% from its peak—even after a 5% jump on Tuesday. Sometimes there really is nowhere to go but up.

Write to Dan Gallagher at dan.gallagher@wsj.com