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Zoom earnings skyrocket as coronavirus use booms, beats Wall Street estimates

Daniel Howley
Technology Editor

Video chat software giant Zoom (ZM) announced its Q1 2021 earnings after the bell on Tuesday, beating expectations and giving investors and analysts their first look at how much growth the company has experienced as a result of the coronavirus pandemic and ensuing lockdowns.

Here are the most important numbers from the report compared with what analysts were expecting, as compiled by Bloomberg.

  • Revenue: $328 million versus $203 million expected

  • Earnings per share: $0.09 versus $0.01 expected

The company’s stock was down in after hours trading

Zoom has been among the biggest beneficiaries, if you can call it that, of the pandemic. The lockdowns, which are now being eased in many countries, forced people to gather in front of their laptops, smartphones, and tablets to stay in contact with friends and loved ones, work from home, and attend virtual classes.

Its revenue, as a result, jumped a whopping 169% year-over-year.

Zoom CEO Eric Yuan attends the opening bell at Nasdaq as his company holds its IPO in New York. (AP Photo/Mark Lennihan, File)

Zoom says it now has 265,400 customers with more than 10 employees, a 354% increase year-over-year, and 769 customers paying more than $100,000 for the service.

The company, however, expects to see a larger amount of customer churn in the second half of the year, due to customers who purchased monthly subscriptions. It’s likely those are customers that will be able to return to work in their offices later this year.

Thanks to its ease of use, and free 40-minute chat sessions, Zoom quickly became the de facto chat platform for people around the world. But as its popularity exploded at the beginning of the pandemic, cybersecurity experts began warning that the company’s lax approach to security and safety were a major issue.

A laundry lists of issues

Zoombombing, in which random users would crash Zoom chat sessions and show images of vile content or scream curses, became such a problem that the New York City Department of Education banned the use of the platform for distance learning.

The company also didn’t enable password protection or a virtual lobby by default for every chat, which allowed unwanted users to join, and was sharing data with Facebook. Video chats were also being routed through China, which raised the prospect that the Chinese government would be able to access recordings of users’ chats.

On top of it all, Zoom claimed to be using end-to-end encryption with its chats, when it actually wasn’t. End-to-end encryption encrypts a message’s data from the point it leaves your device and only decrypts it on the device of the user you’re talking to.

While Zoom was using secure encryption, it wasn’t end-to-end encryption, which is the gold standard for chat services.

It all resulted in high-profile users leaving the platform and calls for an FTC investigation into the firm.

In response to the criticism, Zoom embarked on a 90-day plan to revamp its platform security. It froze any plans to add new features, and focused on ensuring all chats were password protected and that they had a virtual lobby that users could use to screen chat participants before they could join. The company also purchased Keybase with the intention of using that company’s end-to-end encryption expertise to add the functionality to Zoom chats.

So far the move seems to be paying off, as clients such as the NYC Department of Education have started using the service again.

But Zoom has also been criticized for mischaracterizing its number of users. In April, the company claimed it had 300 million daily users, but The Verge recognized a change in the wording of Zoom’s statement announcing the milestone, which rephrased the number as “300 million daily meeting participants.”

The difference between a user and a participant is dramatic as a single user can participate in multiple meetings each day. In a statement at the time, Zoom said that the phrasing was a genuine oversight, but it added to the laundry list of issues the company was dealing with.

Despite all of that, the company appears to be in solid shape moving forward, and continues to be a leader in the video chat app space.

Got a tip? Email Daniel Howley at dhowley@yahoofinance.com over via encrypted mail at danielphowley@protonmail.com, and follow him on Twitter at @DanielHowley.

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