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Zoom caps breakthrough year with a 367% surge in revenue

The video conferencing service reports quadruple revenue growth for Q3 but it still needs to monetise free users

Zoom has reported $777.2 million in revenue for its third quarter, roughly four times more than it reported during the same period in 2019. 

It is the second quarter in a row that the video conferencing service has recorded quadruple growth, with paid customers increasing 485% year-on-year. 

The increase rounds off a highly successful year for Zoom. This time last year it was a relatively obscure company, hardly known outside of the US, but by March the video conferencing service had become a household name.

The need for collaboration software, tied to the fact it offered a free service alongside a paid business tier, helped put the company in startups, schools and homes around the world. 

"Strong demand and execution led to revenue growth of 367% year-over-year with solid growth in non-GAAP operating income and cash flow in our third fiscal quarter," said Zoom CEO Eric Yuan.

"We expect to strengthen our market position as we finish the fiscal year with an increased total revenue outlook of approximately $2.575 billion to $2.580 billion for the fiscal year 2021, or approximately 314% increase year-over-year."

Zoom is expecting its growth to continue into 2021 with total revenue estimated to be between $806 million and $811 million for Q4. However, its revenue will be offset by higher cloud costs due to the sheer amount of free users.

The company said it had 433,700 customers with more than 10 employees in Q3, which is a 485% increase from 2019 but only a 17% increase from the second quarter. 

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The video conferencing service does use its own data centres, but it also heavily relies on vendors like AWS and Oracle, which means it will bear some the cost for its free tier users. This pushed its gross profit margins down to 66.7%, below analyst estimates of 72.1%.

While the firm has its own high expectations for Q4, its gross margins are likely to remain lower than expected as the spike in free users continues to offset its overall business revenues. 

Zoom also announced this that it has selected AWS as its preferred cloud provider. This comes just months after the company shifted a portion of its cloud infrastructure to Oracle Cloud due to an unprecedented surge in new users following the announcement of lockdown restrictions.

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