5 Interesting Learnings from Zoom at $4.3B in ARR | SaaStr

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So few companies have changed as fast, and as quickly, as Zoom did between $1B and $3.5B ARR … which it did in just 1 year (!!) during peak pandemic… and $3.5B and $4B ARR, when Zoom radically changed again.

At $3.5B ARR, Zoom was an SMB powerhouse, with Enterprise growing.  At $4B, everything’s been flipped around.  SMB is now saturated at $4B ARR and not growing, but Enterprise is picking up the slack and growing faster than ever.

Growth has for now slowed to 12% overall during the “Covid Hangover” — down from a crazy 396% during Peak Covid — but Enterprise is growing 31%.

5 Interesting Learnings:

#1.  $100k+ customers are now the engine, not self-serve SMBs.  These 2,900+ customers are growing 46% year-over-year.  This trend had started several years ago, but even in 2021, 63% of revenue was from 10 seat or smaller customers.  That doesn’t look to be the case going forward.

#2.  Sales & Marketing Spend Still Tiny at 25%, But Up From 20% As Zoom Goes More Enterprise.  Zoom still spends half what the average public SaaS company does on sales & marketing — just 25% vs. 50% for most SaaS companies.  But as one might expect, that’s finally going up as it builds out its enterprise sales team and motions further.

#3.  Generating a jaw-dropping $2B of adjusted free cash flow per year.  Even with slightly higher sales expenses, Zoom is a cash-generating machine.  The greatest PLG engine of all time, at least up to $4B in ARR.  Almost half of every dollar they take in turns into pure cash.

#4.  Enterprise NRR is now 123%, but than means SMB is now well under 100%.  It seemed like Zoom could defy the churn we see with so many SMB self-serve apps, but in the end, it couldn’t as it approached $4B ARR.

#5.  Multi-product expansion is in full force now, but probably a little late.  Zoom has one of the best teams in the world, and the fact that the crazy Covid growth couldn’t last forever was clear to them.  So they tried to aggressively expand its platform by buying contact center leader Five9 for $14.7 Billion.  But at the time, the price didn’t clear, and Five9 shareholders turned it down.  Zoom’s phone product has been a material contributor for some time with 3M users, but it’s now pushing its own enterprise contact center and conversational intelligence products which are still on the revenue ramp.  They’ll have success, but they got started too late to have a material revenue impact at $4B ARR.  It will take some time.

Wow, just a crazy ride for Zoom.  They grew faster than any other SaaS company in history after $1B in ARR.  But probably too fast, as Eric Yuan often pointed out.  It wasn’t natural.  It was probably too much.  Zoom the app held up incredibly.  But they went from $1B to $4B ARR so fast, now they’ve got a little catching up to do as they move more enterprise.

It will be fascinating to watch.

Zoom CRO Ryan Azus shares a lot of that recently journey here:

Published on June 8, 2022

Go to Publisher: SaaStr
Author: Jason Lemkin