If you are an investor in Zoom, congratulations. It’s hard to see a stock that has benefited more from the COVID-19 pandemic than Zoom, after reporting somewhat predictably stellar earnings yesterday where the company has grown 355% on an annual basis and had back to back triple-digit quarterly growth. Zoom also announced new customer revenue growth for the quarter of 81%. This shows Zoom’s growth is continuing to come from new customers, which they are adding every quarter.
The early debate among investors was whether Zoom was a stock to short or to play the long game. Many believe these stocks fueled by the pandemic, nicknamed pandemic stocks, are easy targets to short. The argument is made that when life returns to somewhat normal, these stocks will be hard-pressed to show similarly financial and user growth like they are showing right now. There is certainly some truth to this point. However, it is true of any market growth sector. What is unknown is what the true TAM for remote work software is, which makes it hard to know when the growth ceiling will be hit.
That being said, Zoom has clearly seen strong conversion from many institutions they gave free accounts to, largely in .edu, and I do not see strong data points to suggest Zoom accounts/businesses/institutions are leaving Zoom for something else. This means there is a good chance Zoom will retain the majority of users they acquire.
In January, for subscribers, I wrote about the future of work as a tech trend to watch this decade. I made this point, which COVID has helped accelerate, and the results have played out pretty in-line with my prediction:
In this decade, we will see new paradigms of working together that have never been possible, and it will all start with enabling humans to work together from anywhere in real-time. Real-time collaboration in the workplace today is still largely done in person. This is where I think video and then eventually, telepresence via augmented reality, will fundamentally transform how we work and where we work from.
I say this not just because of the idea of being free to work without the constraints of location is attractive personally, but also because it is practical. It would remove more cars off the road for people not having to commute to the office every day. It would ease the pain of high costs of living in metropolitan areas allowing people to live and work freely from the location of their choice. It will save companies money as they can re-think their real estate strategy and not depend on a singular head-quarters to house their giant workforces.
Obviously, I could not have predicted this global pandemic, but many of the holes I outlined with real-time work, as well as how the software will adapt to meet the needs of a real-time remote workforce, have been pretty spot on. While I’m certain this moment of true remote work, collaboration, and real-time remote work would have happened anyway, COVID-19 as speed it up in a remarkable way.
With regard to Zoom, I have a hunch that the market share leaders in this space will remain. Like most other categories, it is very hard to get users to switch to new platforms in mass. Right now, remote work behaviors, habits, and workflows are being developed with and around Zoom, given the strength of their market position. If I had to bet, I would bet that Zoom’s market share holds strong whenever the remote workspace is saturated. But I also expect competition to heat up dramatically as the market is growing. The battle is for new users in this part of the S-curve this market is in, and it will likely be fleshed out over the next few years.
Apple’s 5G Moment
Reports continue to circulate about Apple’s launch plans for iPhones this fall. It is an entirely poorly kept secret that Apple will launch 5G iPhones sometime this fall. The question is how many and at what prices. The supply chain reports I’ve read suggest all four new models will be 5G with two more affordable Sub 600 Mhz devices and two higher-end mmWave devices.
The question remains as to how big a push 5G devices could give Apple for this fall. Apple has historically benefitted from new technology changes, like the shift from 2G to 3G, then from 3G to 4G. So you could argue they should see some lift from the 4G to 4G transition. Apple has also historically seen a surge in sales when they release devices with new design language or form factor design. Interestingly, both these things could be true for Apple’s fall launch. Which is one of the big reasons I am seeing analysts on the sell-side predict a pretty strong holiday quarter for Apple.
I do sense this quarter could be stronger than most, but unlikely to be a record quarter or a “supercycle,” as some have suggested. A report from Bloomberg today suggested Apple is gearing up to make 75m 5G iPhones for fall. This scenario would be absolutely the best case, and I’m sure Apple is preparing for all scenarios in order to meet demand. While it is possible Apple could sell 75m iPhones this fall, it is one of the least probable scenarios, in my opinion.
That being said, it is clear a large portion of the market is due for a refresh, which includes a fascinating stat out of China from Morgan Stanely, where their smartphone market research has uncovered a massive amount of smartphones in China that are more than two years old. The smartphone refresh rate in China had been about 1.9 years up to this point, so the fact the market slowed down refresh could suggest a potential pop for Apple considering new network technology and new design language. While I firmly believe Apple can and likely will have a strong holiday quarter, the situation around COVID-19 remains the biggest element and potential risk. What if we can not go to retail stores in mass come November and December? Historically physical retail has been the biggest driver of sales, and if any restrictions or concerns around COVID-19 limit that, I find it hard to believe Apple can hit a significant sales number from online sales channels only. That being said, we are in unprecedented times, so anything can happen. Suffice it say I am cautiously bullish on Apple’s holiday quarter prospects.