July 18, 2024

Zoom Video Communications, Inc. (NASDAQ:ZM) Citi 2022 Global Technology Conference September 7, 2022 1:45 PM ET
Company Participants
Kelly Steckelberg – Chief Financial Officer
Conference Call Participants
Tyler Radke – Citigroup Inc.
Tyler Radke
Good afternoon, everybody. My name is Tyler Radke welcome to day one of the – now we’re on of the Citi Technology Conference. And for the afternoon session, we’re happy to have Zoom in-person. We have the CFO, Kelly Steckelberg, joining with us, and it’s nice to be doing this in-person, as good as Zoom technology work.
Kelly Steckelberg
Thank you.
Tyler Radke
Good to see familiar faces. So Kelly, I think investors are pretty familiar with who Zoom is as a company. I’m sure we’ve all used Zoom, but it does seem like there’s kind of multiple storylines at the company. You have an Enterprise business that’s still delivering pretty solid growth, but you also have an online or more SMB business that’s starting to see some headwinds – can you just kind of paint a picture on how do you expect those two businesses to kind of evolve over time? And how investors should think about kind of a normalized growth rate at Zoom post this pandemic that we’ve all gone through.
Kelly Steckelberg
Yes. So just to paint the picture, I remind everybody, before the pandemic, we had our online segment of the business, it was about 20% of the business. And at that point, it really served as a funnel to our direct sales organization. That’s really what it was designed for. And then during the pandemic, we saw such an increase in demand that very, very quickly, it grew to be over 60% of our business.
So massive explosion then, of course, the company grew 10 times during that period of time. So in Q2, we announced that the Enterprise – we call our Enterprise sales of the business, which is – this is the part of our business, which is touched by the direct channel, an ISV or some sort of a partner was 54% of our revenue. So it’s grown dramatically again over the last couple of quarters. And Online was 46% of our revenue. So they’re each around $2 billion in revenue.
And as you highlighted, the Enterprise had a very strong quarter in Q2, growing 27% year-over-year. We’re going to talk more about Zoom Phone in a minute, but strong performance by Zoom Phone, internationally, et cetera. So very, very pleased with that. And we expect, as it was before, that Enterprise is really going to be the growth driver for the future of the company, but Online is very important to us as well. Obviously, it’s a very large portion of our business.
What happened in Q2 with Online is that we saw retention rates continue to hold. And for those of you that have been following Zoom for a while, we’ve shared details about retention rates in the past. And how the cohorts are aging, especially those cohorts we acquired during the pandemic. But we’re starting to see stability in that retention area. What was highlighted as some of the headwinds that we saw were additional new subscribers, so coming in the top of the funnel.
And then additionally, we as overall, at the company level, we had a 200 basis point impact from FX as well as direct revenue from the Ukraine and Russia, which has now gone. So on a year-over-year basis, 200 basis points of that’s gone. And that is disproportionately impacting online due to the shorter-term contracts, which are more susceptible to this FX, as well as Online is also more – more concentrated in international, I should say.
So all of that means a little more headwinds that we’re seeing in the Online segment, but we are very focused on returning that segment, first, stabilizing it and then returning it to growth, which is really key for the long term. And we’ve only given guidance for the rest of this year, but we said we expect growth rates for Enterprise to be in the low to mid-20s. And then Online will be down year-over-year.
Tyler Radke
Yes. Great. So, I’d love to kind of unpack some of the different drivers that you have. So on Zoom Phone, I think the seat count has been pretty impressive. You reached over four million seats last quarter, only I think a couple of years after launching it. Can you just frame for us that maybe at a high level, what’s the value proposition with Zoom Phone? If I’m an existing legacy PBX phone customer, I got Cisco or Avaya, are you coming in, replacing it? What are you offering that’s better? Is it better price performance? Just help frame the value proposition for it.
Kelly Steckelberg
Yes. So, we hear from companies all the time. They’ve seen how we transform their meetings experience, and they trust us to do the same with their phone, especially if they’re sitting with an on-prem provider. So we, first of all, have a much more modern experience that they’re having if they were using one of those legacy. We – so Zoom Phone is about three and a half years old. So it’s now matured into having features and functionality that we have Fortune 10 customers that are using Zoom Phone today. So it tells you that it’s meeting the needs of the most sophisticated users and buyers, and it is highly price competitive.
So, when you look at the list price of Zoom Phone compared to even the other cloud PBX providers, it’s about half that price. So, you get this great experience that brings a lot of value and our strategy for selling Zoom Phone is selling into our existing installed base of meeting customers, and then that brings even more value because now you have this integrated platform of meetings, chat, which comes bundled with meetings, a persistent chat and Zoom Phone.
And it’s really seamless, and it’s a great way to be in a chat to immediately escalate that to a phone call or to a Zoom meeting. And I think that’s – the advantage they see from the product and then when you talk about now you get to eliminate another vendor and bring it into one that you already know and trust at a very value-oriented price, there’s a lot of options for people and a lot of reasons why they choose Zoom Phone.
Tyler Radke
Right. And so how do you think about the potential for where Zoom Phone could go? I mean four million seats is impressive, but we look at your customer base, I mean, a lot more customers that aren’t using Zoom Phone. So, how big do you think Zoom Phone could be?
Kelly Steckelberg
So to your point, the last time we looked at the attach rate for Zoom Phone compared to our Meetings customers on a deal basis, it was still single digits. So there’s huge opportunity just in our existing installed base. And we expect what we’ve said for the long term is that Zoom Phone can be 25%-ish of revenue now. If you ask Eric, he’ll tell you it’s even more than that. I think 25% is reasonable. Just remember, Meetings has a huge head start, but Zoom Phone, as you said, is very rapidly catching up. We will disclose when Zoom Phone hits 10% of revenue, which I think should be in a matter of quarters, not years.
Tyler Radke
Right, right. And if we were to take the number of seats that you disclosed and then we think about pricing, I mean, I think the question I often get from investors is about four million seats. Why hasn’t it crossed $10 million in revenue. I know you talked about you are price competitive. But even if we kind of take the half – your comment around half the price point of other PBX – cloud providers, what would kind of explain that difference is? Is it more discounting? Or is it maybe more of like a ramped phenomenon and why we’re not seeing that across the threshold quite yet?
Kelly Steckelberg
Yes. So just to be clear, any of our seats that are in that seat count are paid seats. So, we do sometimes employ the selling strategy that we did for Meetings as well, which is a buyout period, which means if a customer is under a contract with another competitor, we’ll give them that period of time for free while they are implementing Zoom. However, from a revenue recognition perspective, the paid revenue gets amortized over that free period as well. So everything that you’re seeing is being paid or is being – the revenue is being amortized over that period.
So it really comes down to we have a very efficient platform on which all of our services are bill and an efficient margin structure, which allows us to be competitive and some others in the space don’t have the flexibility that we do when it comes to pricing.
Tyler Radke
Got you. And do you think that price discount relative to others is kind of sustainable going forward.
Kelly Steckelberg
Yes. I mean, I think when you look at our gross margins, they were 78.9% in the quarter. We said our long-term target is 80%. I think that just highlights that it is – we have an infrastructure platform that is built – that’s in place along with our data center structure, which lends itself to adding services in a very efficient way that is absolutely sustainable for the future.
Tyler Radke
Got it. Got it. So shifting to the Online business. Obviously, that was an area that you saw more headwinds? Is it related to new customer acquisition. But I actually wanted to go back to just the comment on churn rates because as you said, churn rates did not get worse. But I think if we think about the historical churn rate, I mean, I think it’s 4% monthly churn, which translates to a pretty large number on an annualized basis. So, I guess – how do you think about the ability for that churn rate to improve going over time? Because obviously, the implication is you would have to add a lot of new customers to offset that churn.
Kelly Steckelberg
For sure. So, we look at churn rates on a couple of different things to consider. First of all, it’s just the tenure of the cohorts. And as they age, some of you are probably familiar with other subscription businesses. This is very typical that you see this long tail of people that stay for a long time. And for us, that kind of hits the market 15 months, and we’ve continued to see that stabilize. The things that you can do beyond though, just aging of your cohorts are, first of all, converting them, we have – the majority of our subscribers in the Online segment are still monthly.
So getting them incented to buy annual plans, which we have seen some nice traction. We have incentives around that. And do a lot of testing on our website to optimize for that and then also getting them to buy additional products. Customers with more than one product are inherently more sticky than customers with one. And so thinking about how do we continue to add products and the ability to sell those in the Online platform itself. So Zoom Phone is an obvious one, things like Whiteboard, Chat, all of those continuing to show – like showcase the platform itself Online, is a really important part of our strategy.
And then in addition to that, really thinking about how do we continue to address more of the market and that we are focusing on thinking about international and adding more currencies in which we’re priced, which, of course, will also help from an FX perspective and then also looking at pricing and packaging to make sure that we are addressing those markets in the right way, like $15 a month is not a lot, but it might be too much in certain very cost-conscious markets. And so really thinking about how should we be putting together. Maybe we should have mobile-only packages in certain markets. And those are the types of initiatives that the market is – the online team is really working on.
Tyler Radke
Right. Right. And I think you’ve talked about the Online business hitting an inflection point at some point, right? I think it’s a little hard to pin down exactly when that happens. But can you just kind of walk us through what that means? And maybe how you’re thinking about what structurally this Online business can grow once it hits up?
Kelly Steckelberg
Yes. So we had said previous to updating our Q2 guidance, we expect that inflection point to come in Q4 of this year. Obviously, with the shift in guidance, that has shifted out, and it’s probably sometime early next year, early to mid next year, I would say. And the things that have to happen for that is stabilization first, right? And so that includes increasing what’s coming in the top of the funnel, free-to-pay conversion. So one of the things that we did earlier this year was to put a cap on one-to-one meetings. Previously, those had been almost unlimited. And that had a very positive impact on our conversion rates.
Now what we see is, we know that people are still running businesses on Zoom without paying as we see these back-to-back-to-back-to-back meetings. And so thinking about, okay, how else do you moderate that? Can you do things like limiting the number of meetings per day, putting brakes in between? So continuing to think about how to always improve those conversion rates. And then the other opportunity is really international, as I said before. Like how do we really make sure that we have a product and packaging and pricing that is really set up to meet the global needs which we’re not quite there yet.
Tyler Radke
Yes. And I guess, is there a level of new customer additions because we can kind of look at your disclosure each quarter. Is there a level of new customer additions you’re kind of targeting for Online business on a steady state just to get – to get to that inflection point? Or how are you thinking about how much the customer additions need to improve from here?
Kelly Steckelberg
Yes. So, we really look at it from a combination of – well, what we’re driving internally, of course, and what we measure to is, we do it on an MRR basis. So monthly recurring revenue. And that’s how we look at it. So it’s a combination of both retention, as well as new customers. And that’s how we think about it. So while, yes, we have targets around new customers, it’s really managing to the revenue itself, the monthly recurring revenue itself.
Tyler Radke
Got it. Okay. Shifting back to the Enterprise side. You recently hired Greg Tomb as President, also obviously leading the sales organization. Maybe just walk us through what – what was the rationale on bringing President on? And what are some of his biggest priorities?
Kelly Steckelberg
Yes. So when we went public, I used to always joke that Eric had like five jobs, right? He was not only our CEO, but he was also running engineering. He was probably our number one salesperson as well as our Chief Engineering Strategist. And I mean, it’s sort of a joke, but it’s also a little bit true, right? And so since then, as you can see the company continue to mature, we first hired a President Velchamy, who took over Engineering and DevOps, which has been great. It’s given Eric some more room.
And Greg’s addition is in the exact same vein of that. So Greg’s areas of responsibility are: he has the direct sales organization. So Ryan Azus, our CRO [ph], reports to him. He has the Online segment. So Wendy Berg who’s the GM of that team reports to him and then Marketing, so our CMO, Janine Pelosi reports to him. And what’s really unique and – I mean, Greg is great, very talented executive, but also he’s very unique that he has been on both sides of Online and Direct. And we have a unique business in that aspect. And so finding someone who understands both sides of it was also really an amazing opportunity for us to have somebody great like that join our team.
And I think the goal – somebody asked me like, well, what does that mean about the performance of the other teams, like it has nothing to do with any of them. It’s all about getting Eric some more leverage, and that’s really what it comes down to. So, we’re thrilled to have Greg join. Hopefully, some of you heard him on the call. He certainly has some ideas about how to make us all better. So we welcome that.
Tyler Radke
Yes. Yes. I wanted to get into that, but I guess what is Eric going to do with all this free time.
Kelly Steckelberg
With all his free time?
Tyler Radke
Yes.
Kelly Steckelberg
So Eric is always thinking about, I would say, probably two things. First of all, how to serve our customers best. And that translates currently into what’s the platform strategy. So he is, when I – he really is our chief visionary at the company. I mean we – obviously, we have a whole product team, we have an engineering team, but Eric is really the one who probably sits and thinks about that every single day. And sometimes has ideas in his head that are years beyond what any of us can see. And I think it just gives him more room for that.
Tyler Radke
Right, right. So going back to some of Greg’s new ideas, which I’m sure there’s more than we heard on the earnings call. One thing that stood out to me is, he said, Zoom was often too nice when it comes to pricing and discounts. So, I guess there’s a couple of questions on that. How do you think about your pricing power generally, given you have a very elegant product, but it’s also a market where there’s a lot of competition. So, how much do you think that pricing can be a lever compared to what you’ve historically done?
Kelly Steckelberg
So – a couple of things. First of all, we’ve always had a strategy of we win based on product, and we don’t lose based on price. And at our company, we focus on why simple wins is required reading for every new hire at our company.
And so with that in mind, we have purposely set up like discounting grants of authority at our company to be very simple, to reduce the friction for our salespeople. Now, I think we always thought the counterbalance to that was reps, they want as much as possible to get a go in against their quota. And what Greg has observed is potentially either reps have built up habits, so potentially even negotiating against themselves sometimes at the very end in an effort to close a deal. And he just wants to have us all, I think, step back for a minute and evaluate where there are opportunities to hold the line a little bit more.
So, we want our customers to see great value from Zoom. I have personally had customers tell me, you know we would pay more. And then they say, we pay such and such for this product, and such and such for that product. And we’re okay with that. We really are okay. We want them to love Zoom and see a great degree of value. However, if there are opportunities within our rep base to be a little more strategic about pricing, I certainly welcome it. I do not think that you should expect to see a big lift up from it in our revenue. We haven’t, for example, forecast that it’s going to change anything in terms of our outlook. It’s more about, I think, having good practices now reinforced within our sales organization.
Tyler Radke
Right. Right. Interesting. Okay. Shifting gears to the M&A environment. So last year, there was – you were going down the acquisition path with Five9, which unfortunately, did not pan out. But how are you thinking about M&A in this environment, especially now that the valuation multiples are a lot lower. You have a lot of cash on the balance sheet. Just high-level thoughts on M&A environment.
Kelly Steckelberg
Yes. So, we’ve done a few smaller acquisitions, mostly focused around talent or technology tuck-in, Solvvy was the most recent, which brought us conversational AI into our contact center solution, which we’re thrilled to have them join our team, that’s been very successful for us. And as you can imagine, in this environment, our inbounds have increased dramatically. And we do see M&A as an opportunity to accelerate both technology and talent, but we have a very high bar for that.
And so the lens that we put upon any of those is, okay, how would this benefit our customers? How is it going to make our product better? How is it going to make our team better and our culture – and enhance our culture? And then, of course, as with everything, we are very thoughtful about valuation. And so trying to look at everything through that lens. We just haven’t found anything yet that really fits the bar – or meets the bar. But we will. We’re continuing to look at it. And I think the environment that we’re in right now certainly creates interesting opportunities for them.
Tyler Radke
Yes. And have you seen kind of the inbounds increase dramatically across company sizes? Or is this mostly kind of the venture back.
Kelly Steckelberg
Mostly private. Yes, I think that companies that maybe six months or a year ago, really were focused on wanting to be a stand-alone public company or realizing potentially they might need to consider alternatives.
Tyler Radke
Yes. Okay. And as you think about the contact center space, I mean, obviously, Five9 is a very respectable asset in that space. Now that you are not going through with that acquisition and have invested. It seems like quite a lot in your internal Contact Center offering. Is a Contact Center related M&A off the table? Or how should we just think about that from what you’ve signaled on M&A and organic investments.
Kelly Steckelberg
Yes, so Contact Center, the way that we think about it specifically, it is actually a product that lends itself well to technology tuck-ins. So we have – when we look at the core functionality for Contact Center, there’s like a grid that we look at, and there are pieces of it that are inside the grid that we believe are core to the needs of the product itself and should be natively built.
But then around it, there are other applications, if you will, that could be bolt-ons. So the easiest one for me to understand and explain is workforce management. If you think about these big companies that have lots and lots of call center engines, they need a way to manage the queue, manage the team, measure the quality of it.
And that’s something that potentially doesn’t have to be core to the – like the video, the phone piece of it, but it’s important when especially large enterprises are evaluating call centers because they want it to be seamless and easy. And so that’s an area that potentially could be easier to augment through M&A than us potentially building it ourselves.
Tyler Radke
Got you. Got you. And with your own Contact Center that was recently rolled out, I’m curious, obviously, you’re bringing more of a video approach to it, which is different from other Contact Center approaches. But have you discovered any new use cases or maybe new buying centers that you didn’t think of before or…
Kelly Steckelberg
What we’ve seen initially is companies really being thoughtful about using Zoom internally for their internal like HR, where they want to talk to their employees in a different way. So call center implemented internally for either their IT help desk, where it’s also really helpful to be face-to-face and to be able to share your screen and do all of the functionality that exists in the Zoom Meetings core in addition to either like I said, internal HR, internal IT, those we have found to be really strong use cases straight out of the gate for us.
Tyler Radke
Got it. Got it. Okay. We have about 15 minutes left. We’ll see if there’s any questions. Otherwise, we keep going. Yes.
Question-and-Answer Session
Q – Unidentified Analyst
[Technical Difficulty]
Kelly Steckelberg
We invested in – yes, we purchased their investment, yes. What are you thinking there?
Unidentified Analyst
[Technical Difficulty]
Kelly Steckelberg
Yes. Well, when we think about the future of events, so Amex is very strong in events that are Zoom events platform, which lends itself very well to hybrid. So both in person, as well as virtual, like have an event like this could have a hybrid track as well that partnering with Amex who is often planning those types of events could be a really great relationship to have for the future. So that’s why we chose to invest in them.
Tyler Radke
Yes, go ahead.
Unidentified Analyst
[Technical Difficulty]
Kelly Steckelberg
Yes, it’s really interesting. So Eric’s goal from the beginning has always been to make a Zoom Meeting better than in person. And in some ways, we’ve already accomplished that. If you think about the ability to transcription, translation, not have to take notes, you’ve things that come along through the AI capabilities that are attached to a meeting.
As well – I mean, there’s all kinds of other things that we’ve seen during the pandemic, your ability to identify people with their names, like I sit here, and I don’t know who everybody is in the room, right? On a Zoom Meeting, I would know all of you were or people we’ve heard from people that are more introverted that on Zoom Meetings they get the ability to speak up and raise their hands. What’s missing is the thing, like Tyler just said, like I never shook his hand before today.
I saw him downstairs. I knew him, I recognize him, we’ve seen each other, but I never got the chance to actually shake his hand before today or be sitting here and he’s having a cup of coffee, I don’t get to experience that same thing with them.
He’s like, “Oh, Kelly’s, this is so great.” So that’s where the Metaverse keeps going, right? It’s how do you bridge that physical gap. And that’s what Eric’s vision is. He doesn’t call it the Metaverse, but that’s what he’s – to your point earlier, what he’s sitting around thinking about, he’s thinking about that.
How do we make it even bridging more closely? Like Eric would say here, “Oh, I want to give you a hug,” right? Like how you can’t do that in a meeting today, Zoom Meeting today. But at some point, he’s going to figure it out, and we will. And that’s where it’s going to extend.
Unidentified Analyst
[Technical Difficulty]
Kelly Steckelberg
Yes. So where we saw strength specifically in Q2 was U.S. meetings, phone rooms and in Asia-Pac, more Meetings and Rooms and Phone. Phone is coming, but it’s a little bit further behind. As you’ve all heard and probably hear in the news, we certainly saw headwinds in Europe as that economy, I think, is really having some challenges right now, but Asia-Pac was strong, as was U.S. in those product areas that I mentioned.
Strong in Meetings, Rooms and Phone those were the three key product drivers. I mean Contact Center, I think, surprised all of us in terms of like the steep size deals that we saw, but it’s so early. And it’s so – in terms of revenue contribution, it’s very little at this point. And then Asia-Pac strength there from meetings, as well as to a lesser extent, Phone.
Unidentified Analyst
[Technical Difficulty]
Kelly Steckelberg
So our relationship with Microsoft has, for a long time, been one of both partner and competitor. And when we hear from our customers, again – they make decisions from our customer’s perspective, they often want to use Zoom for Meetings and Phone, but Teams for chat. And so we have strong integrations with them around, you can launch a Zoom Meeting or a Phone call from the Team’s interface.
You can launch a Zoom Meeting from a Microsoft-enabled conference room. And I mean that is how we plan to continue. I mean they certainly are a formidable competitor that we never take for granted. And I think it’s incumbent upon us to keep making products that our customers really love.
Tyler Radke
And in terms of some of the investments you’re making, obviously, R&D, you’ve talked about that being kind of under the target, long-term 10%, 12%. So I think your R&D spending growth is growing quite fast over 50%. What are all those new engineers working on? I mean where you putting them to work and what are they developing?
Kelly Steckelberg
Yes. So as we’re expanding the platform, that obviously presents new opportunities. So new products recently come to market as a matter – of course, Contact Center, but there’s also Zoom IQ for Sales. There is the Whiteboard product. And then focused on the future of work, we continue to see evolution around Meetings, Rooms, Zoom Events.
So there are lots of opportunities when you think about products, both for the enterprise as well as some modifications potentially for some of those to be sold online as well. And then again, one more reminder and invitations to come to Zoomtopia in November, where Eric’s keynote is always one of the highlights, and I’m sure there’s going to be something new to be announced there as well.
Tyler Radke
[Technical Difficulty]
Kelly Steckelberg
Yes, it’s a good question. I mean, the only real difference in terms of Enterprise versus Online is around sales, sales expenses. But remember, under the recent rev rec [ph] rules that came out a few years ago, commissions get capitalized and amortized over an estimated useful life, which for us, I think, is three years.
So you don’t incrementally – it extends over a period of time. And so – the only way the margin changes over the lifetime of an enterprise customer is if they renew, we don’t pay reps on renewals. So if they renew after three years, exactly the same. There’s no incremental up sell. Then the rest of that deal would be without the amortization in theory of the commission. That would be the only way there’s a change in sort of that overall margin.
Tyler Radke
Okay. And going back to your guidance for the second half of this year, I think you have an expectation that the EMEA business – or sorry, the Online business declined 7%, 8%. I assume a lot of that is also driven by EMEA.
Kelly Steckelberg
It is.
Tyler Radke
I guess like, are you assuming that the trends that you saw in the second quarter kind of stay the same? Or are you expecting things to get worse? I imagine it was a bit of a moving target throughout the quarter. So I’m just kind of curious how you came to those assumptions given something kind of surprised you to the downside in the quarter.
Kelly Steckelberg
Yes. So the way that we in general, forecast the online segment of the business is we work with Wendy and our team, our GM. We look at, of course, the existing installed base and how they’re trending. We look at historical seasonality, which even that has been a little bit challenging because there’s a lot of noise in there from the pandemic, but we try to look back at seasonal trends that we have seen. And then, of course, we’ve layered in, okay, what do we think is happening in Europe, what do we think is happening with the exchange rate or strengthening of the dollar.
What are the initiatives that she’s working on, and what do we expect to see from that. And then we said, okay, now what could go better and what could go worse. And it’s really difficult sitting in this economy, in its macro, telling Charles, I think this morning, I should stop listening to the news in the morning because like it doesn’t – if you listen to Bloomberg, right, doesn’t seem like anything is going right, everything is only going wrong. And that’s where you try to risk adjust it to the best you can for our guests.
Tyler Radke
Right, right. And sticking on kind of the more macro topic, but something that might be helping you actually is the hiring environment. I’m curious, just given, we’ve seen some layoffs at other tech companies, you are hiring pretty aggressively. Has that provided any type of tailwind in terms of like less competitive offers or even attrition rates? Have those kind of decreased as a result of the environment.
Kelly Steckelberg
Yes. We have seen our attrition rates stabilize for sure in our employee base over the last couple of months. In terms of hiring, I think Zoom is a unique place. We have a great brand. We have an amazing culture. And I think you can see it by – even at the executive level, which is very apparent to all of you, the amazing talent.
We talked about Greg. We also hired a new Head of People Experience. His name is Matthew Saxon. He came from Meta. He’s amazing. He is based in Austin, which I love, he is my neighbor. I mean it’s – we’ve been able to continue to attract great talent. I’m – we’re interviewing for a Corporate Controller in my team right now, and I met some candidates. They’re off the charts. So I think the company has a lot of potential ahead of us and candidates see that.
Tyler Radke
Yes. Yes. Got it. One of the things you talked about earlier was the – you made some tweaks to the meeting limit on Meetings. How are you just thinking about that long-term? I mean, obviously, any 1 of us can go and host a Zoom Meeting for free, I think up to 30, 40 minutes.
And – do you have plans to kind of squeeze that further? I know you also had planned the one time to kind of introduce advertising. But how are you just thinking about the levers you have to better monetize that?
Kelly Steckelberg
Yes. We are absolutely continuing to look at that and see what makes sense and where is the right value trade-off for that free potential user and Zoom, frankly, like we want users to be able to use Zoom for free on a casual basis.
Like if you want to have a phone call or a meeting with your friends or your family or even occasionally for a business prospect, great. What we think is fair is if you’re running a business on Zoom and not paying for it, maybe that’s not exactly what it was designed for. And so we can see, we can, of course, see exactly who’s running 40-minute back-to-back meetings. And I’ve had customers tell me, “Oh yes, we just take a tea break and then we come back and get back on,” like we know that. So we are certainly looking at opportunities around that, and maybe it’s you’ll have a certain number of meetings per day or – yes. So I don’t know exactly where the right balance is for that, but we continue to experiment with it.
Tyler Radke
Got it. Okay. And as I think about – there’s been some discussion around Zoom Chat. And obviously, there’s a number of other collaboration platforms out there, be it Slack or Teams. How do you kind of see Zoom evolving as a broader collaboration or workflow capabilities? Is that a priority for product investments and – how should we think about how the product kind of evolves over the coming years?
Kelly Steckelberg
So Zoom Chat. To be clear, we have a persistent chat product that comes embedded when you buy Meetings. It’s not the in-meeting chat itself. It is a persistent chat that sits – is a separate icon on the client. And we’ve had that product for a very long time. it has become a much more important strategic focus in the last year or so as Zoom Phone has grown especially. It’s really – if you think about the action that you all go through, very few of us today, just pick up the phone and call ever, right?
You always chat somebody first, are you available? Do you have a minute? And Chat is an important – so it becomes a very important partner to Zoom Phone. And we have been investing there. In fact, we have a new bundle, Zoom One, which is designed as an enterprise bundle, and it’s also meant to really highlight the strategic nature of Zoom Chat. So it’s Meetings, its Chat, it’s Zoom Phone, and you’re going to continue to see more of that.
Tyler Radke
Okay. And maybe sticking on that topic because I know when that product announcement came out, you got a lot of questions. How are you kind of positioning Zoom One to your customer base? I think in theory, if you do the price calculations, one could argue, maybe it’s a little bit cannibalistic or price deflationary. On the other hand, maybe it opens up deals that couldn’t otherwise unlock – like how should we think about that? And what’s been the customer response.
Kelly Steckelberg
Yes. So it’s new. It was – I mean, just we announced early Q2. So it had a good start in Q2 actually. I mean you won’t see it because, of course, eventually, it will get allocated out to the product lines itself, and it’s not a product. It’s just a skew a combination of them, but it’s really designed to make it really easy for enterprise customers to buy. That’s the idea.
Rather than having to like pick and choose the SKUs to put them all together for them and be like, “Hey, here’s an offering for you that probably meets the majority of your needs, and this is why. And yes, coming – it’s valued to us again, for all the reasons we’ve already talked about earlier today to have customers on a platform of products rather than an individual one.
And so there is some discount that comes from the package, but we generally, first of all, we see it as new customers buying it rather than other customers renegotiating around. But even if we do that over time, I think it will still be highly advantageous for us.
Tyler Radke
Right. And the products are Zoom Phone, video…
Kelly Steckelberg
Video, [indiscernible] Meetings and Chat.
Tyler Radke
Right. Right. Yes. Got it. Okay. Well, I know we’re almost out of time, but I’ll leave it kind of open ended, just anything you wanted to leave the audience with or anything that you wanted to highlight that we didn’t cover as we think about the rest of the year.
Kelly Steckelberg
Yes, I think I would just highlight our priorities for the rest of the year, which we are transitioning to being a platform company. We have – any of you that covered Zoom for a while, remember the product wheel we had at the IPO. We have a new expanded product wheel, which we’re super excited about, which really highlights all the features and functionality and the future.
And with that, comes the stabilization of the Online business. I think those are probably the two biggest priorities that we have for the year. And if you think about the opportunity to continue to grow the enterprise with stabilization in Online. I think that really just highlights what the future of Zoom can be.
Tyler Radke
Great. Well, thank you very much for joining us. Good to see you in person.
Kelly Steckelberg
Yes. You too.
Tyler Radke
All right.

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