Zoom posts big quarter even as subscriber growth slows; what happens post-pandemic?

SAN RAMON, California — Zoom’s astronomical growth is tapering off along with the pandemic.

And that’s raising questions about whether the videoconferencing service’s immense popularity will fade as more people return to classrooms, offices and other places that have been off-limits for the past year.

The deceleration is clear from its otherwise-impressive new quarterly earnings report. The stellar results capped a year in which Zoom’s name became synonymous with the way millions of people have been forced to gather in online video panels while being corralled at home.

Though Zoom continued to enjoy robust gains from November through January, its subscriber increases were significantly smaller than in each of the previous three quarters, which unfolded during pandemic life.

Despite that widely anticipated slowdown, Zoom’s quarterly earnings and revenue easily topped analysts’ projections, as did management’s forecast for the February-April period and the upcoming year.

The deceleration in subscriber growth, which began late last summer, is causing some investors to worry that Zoom won’t be able to sustain its momentum as more people get vaccinated and life starts to revert to pre-pandemic patterns later this year.

Those concerns are the main reason Zoom’s once-soaring stock price has dropped by about 30% from its peak reached last October.

Zoom finished January with 467,100 customers with at least 10 employees that were paying for the subscription version of its service. That was an increase of 33,400 customers from the previous quarter, ending in October — far below the gains ranging from 63,500 subscribers to 183,500 subscribers in the previous three quarters of operation, all during the pandemic.

“Zoom has had an amazing year, but all good things must come to an end,” said Nucleus Research analyst Trevor White. “The fundamental problem remains, however: Zoom is not going to be able to keep up with the growth that it has seen.”

Even so, Zoom is far larger, more profitable and better known than it was before the coronavirus pandemic upended society and helped make its videoconferencing a staple of work-from-home life. The San Jose, California, company now has nearly six times more subscribers than it did a year ago, and its yearly has quadrupled to $2.65 billion during the past fiscal year.

In its most recent quarter, Zoom posted revenue of $882 million, more than quadrupling from the same time in the previous year. The company turned a profit of $260 million in the last quarter compared to $15 million during the same period the previous year.

Realizing that the demand for videoconferencing won’t be as great after the pandemic is over, Zoom has been introducing other features such as an Internet phone service for voice-only calls in hopes of bringing in more money. The phone service now has 10,700 customers, most who also subscribe to its videoconferencing service.

Kelly Steckelberg, Zoom’s chief financial officer, said she expects videoconferencing to remain a key communications tool for most people who latched on to it during the pandemic.

“As we progress to the world reopening, people have now integrated it into their lives in the way they work, in the way they learn, the way that they socialize,” Steckelberg said in an interview. “That is not just going to change.”

With $4.2 billion in cash and a still-valuable stock, Zoom also now has the ability to expand into other areas through acquisitions, said Third Bridge analyst Scott Kessler.

Steckelberg said the company is “constantly looking at opportunities” to expand.

Zoom also is counting on many businesses to hold on to their videoconferencing subscriptions even after their offices reopen so some employees can continue to work remotely part of the time.

Even so, “It would seem offices will be used more, and Zoom will be used less,” Kessler said.

Zoom is betting that the success of videoconferencing during the pandemic will encourage companies to hold more meetings online rather than require employees to travel from different locations to convene in one physical location.