Zoom delivered an "incredible" earnings beat in its first quarter report on Tuesday, as it saw its usage and popularity skyrocket due to a coronavirus-related rise in remote work.
It also doubled its revenue guidance for the year to $1.8 billion, though some on Wall Street think that that estimate may not have gone far enough.
"It sounds odd to say, but I actually think that's conservative," DA Davidson analyst Rishi Jaluria told Business Insider.
He's not the only one.
While a few analysts Business Insider spoke to mentioned challenges that Zoom will face hitting that goal, the majority believe that there's more opportunity left for Zoom to grow than it estimated in its guidance.
How Zoom could beat its expectations
Zoom said 30% of its Q1 revenue came from customers with 10 or fewer employees, which is an increase from the previous quarter, when small paid customers made up 20% of revenue. Executives cautioned that because those customers pay monthly — rather than yearly as large business customers do — they expect to see a lot "churn" as those smaller customers drop the service later in the year when things return to normal or they need to cut costs. Zoom was trying keeping guidance conservative as a result, the execs said.
BTIG analyst Matt Vanvliet points out that while the percentage of revenue from small customers did increase, the company had been focused on increasing its share of large enterprise customers since before the crisis, and believes it's succeeding.
"You're seeing potential for higher churn in the very low-end of their customer base, [but] they have grown very substantially in the higher-end portions," Vanvliet told Business Insider. "That's a more stable base and has longer term contracts."
Jaluria believes that even as offices start to reopen, Zoom will continue to keep more customers than expected because those users have seen how valuable the product is and will be thinking about how to be prepared for a potential second wave of the coronavirus (or other similar crises).
"I think that's going to accelerate the migrations from something like WebEx over the year," he said. He thinks Zoom will be able to continue to get paid customers by targeting specific industries with specialized tools and features.
On a call with analysts on Tuesday, Zoom's CFO said education was the fastest growing industry using Zoom last quarter. While some of that is because Zoom offered free service to K-12 schools, Vanvliet thinks it will lead to more demand from higher education and private schools who see the value of using Zoom as an online learning platform. Many universities are still weighing decisions around reopening campuses in the fall or sticking with online learning.
Jaluria added that healthcare and telemedicine are another huge market for Zoom that likely saw increased usage last quarter, even though Zoom didn't specifically call it out.
Skepticism due to competition
On the other side of the spectrum, Nucleus Research analyst Trevor White is skeptical that Zoom will meet its new full-year revenue target.
"They haven't really addressed where this continued growth is going to come from," White said. He thinks that many enterprise customers have made their selection for which video conferencing vendor they'll be using, so there may not be as much new opportunity there as Zoom's expecting.
"I think they're still going to be very sensitive to any price pressure that is on them, particularly as they're going to have to spend a bit of money to upgrade their infrastructure," he said.
Competition may also weigh more heavily on Zoom as competitors like Microsoft Teams, Google Meet and even small vendors like RingCentral get more competitive. Pat Walravens, an analyst at JMP securities, is more hopeful about Zoom's ability to meet its targets, but he acknowledges that Zoom's competition is heating up.
While he thinks inbound interest from large customers will continue growing, more competition means it will be harder for Zoom to keep those smaller users who pay monthly.
"There's a lot of competition coming, Walravens said. "Zoom has to keep doing what they've been doing, which is have the product that's the easiest to use, and that makes people the happiest and they also have to make sure it's safe."