The mass migration of business to work-from-home (WFH) arrangements has supercharged the financial performance of conferencing and collaboration platform Zoom.

However, the need to rapidly scale up its cloud infrastructure also cut its profit margins.

Revenues surged 169 per cent to $US328 million for the quarter. GAAP net income attributable to common stockholders for the quarter was $27.0 million, or $0.09 per share, compared to GAAP net income attributable to common stockholders of $0.2 million, or $0.00 per share in the first quarter of fiscal year 2020.

According to Eric S. Yuan, Founder and Chief Executive Officer of Zoom, “We were humbled by the accelerated adoption of the Zoom platform around the globe in Q1. The COVID-19 crisis has driven higher demand for distributed, face-to-face interactions and collaboration using Zoom. Use cases have grown rapidly as people integrated Zoom into their work, learning, and personal lives.”

In prepared remarks for the investor presentation, Yuan said, “Nearly 10 years ago, we created Zoom to build a better, simpler, and more efficient video communications platform. Today, I am proud to see that our platform is serving a critical role beyond our original vision in enabling communication and collaboration for businesses, schools, consumers and the global community to stay connected and operational during the COVID-19 pandemic. ”

Cashflow

The company’s cash figures are stunning.

Net cash provided by operating activities was $259.0 million for the quarter, compared to $22.2 million in the first quarter of fiscal year 2020. Free cash flow was $251.7 million, compared to $15.3 million in the first quarter of fiscal year 2020.

The results of course are driven by a huge uptake in usage caused by Coronavirus. There has been a 354 per cent increase in customers with more than 10 employees compared to the situation a year ago.

There was also a 90 per cent spike in the number of high-value customers – those spending more than $US100,00 a year.

Despite the great result, shares actually fell four percent in after-hours trading after analytsts learned of the impact of the surge on the operating costs – in particular cloud costs.

Cloud costs

In particular, the need for increased computer capacity from services such as Amazon Web Services cut gross margins from 82.7 per cent to 68.4 per cent.

According to Yuan, “Scaling capacity to meet this incredible increase in traffic and use cases while providing uninterrupted, reliable and high-quality services to our customers have been a tremendous undertaking for our team. And we could not have done it without relying on our partners.”

He acknowledged that when the pandemic crisis started, Zoom’s own data centers could not scale fast enough to handle the unprecedented traffic. “Fortunately, some the top public cloud providers were there to help. Immediately during the crisis, our longtime partner AWS and its CEO Andy Jassy enabled us to meet this rapidly increasing demand.”

“As our demand increased and we had limited visibility into the growth, AWS was able to respond quickly by provisioning the majority of the new servers we needed, sometimes adding several thousands a day for several days in a row.”

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