Tue.
Oct 20
2020
Is Zoom the New Exxon Mobil?

Image: Zoom

Zoom Video Communications, the online platform that became a household name during the COVID-19 pandemic, sees video communications trends as here to stay. And second quarter results may show a blue chip in the making.

Zoom revenue grew 355% year-on-year to $663.5 million in the second quarter, according to a Zoom press release. Its penetration into companies with more than 10 employees grew 458% year-over-year to approximately 370,200 clients.

The astounding success of the company suggests that remote communications could kick down the door and take its place as the hot commodity in the post-pandemic world – and could even surpass hurting oil producers like Exxon Mobil in value.

Zoom’s $117.5 billion market capitalisation is certainly on a rocket ride upwards towards Exxon’s $159.8 billion valuation. Not much appears to be stopping that trajectory, as Morgan Stanley survey of summer interns found that 72% expect to spend more time conducting business on their smartphone in three years, while 38% expect the same trend for communicating with family and friends. Only 4% and 2% respectively expect to spend less time doing those activities on their smartphones.

The second quarter results were above consensus, with revenue for the quarter alone exceeding its entire 2019 sales. Zoom stands to see full-year revenue in the range of $2.37-$2.39 billion this year. This would make it the fastest software company to pass the $2 billion mark after its founding, according to investment banking company D.A. Davidson & Co. Before Zoom, this record was held by customer relationship management platform Salesforce, which developed into a $2 billion revenue company after 14 years.

That growth has yet to meet a ceiling. Internationally combined APAC (Asia Pacific) and EMEA (Europe, Middle East and Africa) revenue accelerated to 629% year-over-year and represented approximately 31% of revenue. Americas grew by 288% year-over-year. It has also increased profitability rates at it meets increased demand. Zoom posted 42% in operating margins compared to an over 20% long-term operating margin target set at the IPO. According to Bloomberg,19 out of 22 analysts revised their target prices for Zoom shares upwards after the second quarter results.

And even so, Zoom penetration with big corporate clients remains low. Zoom CEO Eric Yuan welcomed several new big corporate clients on the company’s investor call, including Exxon Mobil, who chose Zoom as their unified communications platform.

On the same date as the Zoom investor call took place, Exxon Mobil was kicked off the Dow Jones Industrial Average after spending nearly 100 years on the list of blue-chip companies. Exxon was the oldest member of the prestigious index, whose presence on the list dates back to 1928. It was replaced by none other than Salesforce, whose stock had pushed off the global financial crisis and grew 27-fold since March 2009.

The Dow Jones Industrial Average weights its constituents by price rather than market value, unlike the S&P 500, which has become more prestigious as a market-moving index. Roughly $28.2 billion of passively managed funds are linked to the Dow, while $4.6 trillion are linked to the S&P 500.

The Dow is in many ways like a members’ only club that has been criticised for old ways and lack of progress, but is still sought after due to its exclusivity and long history. Against this backdrop, Exxon’s recent exclusion from the index is a major sign that even a traditionally-minded establishment is turning away from big oil. Chevron is now the only oil company in the Dow Jones Industrial Average. As CNN eloquently put it, “Exxon is the best-known company in the fossil fuels industry at a time when investors would prefer to bet on solar, wind, and Tesla.”

At least 121 ETFs are currently holding Zoom Video Communications. In June, CNN observed that Zoom was worth more than nearly 85% of the companies in the S&P 500. Zoom is included in the Nasdaq 100 Index and the MSCI World Index. No doubt it is bound to become a part of the S&P 500 and, finally, the Dow Jones. It took Salesforce roughly 21 years from its founding to achieve Dow inclusion – considering its superior growth rates, Zoom will need significantly less time.

Remember the days when we couldn’t imagine something would penetrate our lives more than oil does, from pills and packaging to transportation and heating? Yet sustainability trends have diminished the role of oil, while Zoom is penetrating new spheres of our lives.

When asked about exciting cases on the company’s investor call, Yuan, the Zoom CEO, cited several examples of properties in Singapore being sold over virtual tour on Zoom to a virtual jury trial in Florida. We cannot yet imagine the full extent to which Zoom and other online communications tools will penetrate daily life. But as Exxon Mobil is the world’s best-known oil company, Zoom is becoming the same proxy for remote communications of all kinds.

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Irina Logutenkova

By Irina Logutenkova

Irina Logutenkova is an IR consultant and freelance journalist covering ESG.