With coronavirus cases in the U.S. topping 15 million and experts warning of another surge after Christmas, more Americans have likely retreated back into their homes. And that inevitably means you, and millions of other people, will pile back into Zoom (ZM) chats to, at least virtually, see someone, anyone, who doesn’t share the same four walls as you.
The service, which Yahoo Finance named its Company of the Year 2020, exploded in popularity this year thanks to its free 40-minute chat option, quickly becoming the go-to service for consumers around the world trying to stay in touch with friends and family. And while people may have stopped Zooming as much as the virus slowed in the summer, the surge from the winter months will bring us all back online.
“[Zoom] is going to have this big influx of free users,” says D.A. Davidson analyst Rishi Jaluria, who lives in San Francisco, which recently issued a stay-at-home order. “Anecdotally, I’ll tell you, the stuff that I was doing back in March and April, I’m doing that again, you know the Zoom and happy hours and all of that sort of stuff.”
And while that increase in free users won’t benefit Zoom in the near-term — after all, they’re not paying — it could have a profound impact on the company in the long-run thanks to its greater visibility and users becoming accustomed to the software in general.
Back to Zoom drinks and parties
In the past week, California has issued stay-at-home orders for various parts of the state with more than 10,000 patients hospitalized in the state — a figurer that’s 70% higher than it was a couple of weeks ago, according to The New York Times. In New York City, indoor dining is expected to be shut down by next week as cases in the five boroughs continue to rise.
Nationally, the U.S. recorded more than 219,282 new coronavirus cases on Dec. 8 up from 185,552 on Dec. 7, and experts, like Dr. Anthony Fauci, the U.S.’s top infectious disease expert, warn that the holiday season could be make or break for the country.
“I hope that people realize that and understand that as difficult as this is, nobody wants to modify — if not essentially shut down — their holiday season, but we are in a very critical time in this country right now,” Fauci said during a CNN interview on Monday.
“We’ve got to not walk away from the facts and the data. This is tough going for all of us.”
Dr. Anita Gupta, an adjunct assistant professor of anesthesiology and critical care medicine at Johns Hopkins, told Yahoo Finance that gathering indoors with people carries greater risk in the winter. Part of that risk, naturally, has to do with people in close quarters spraying particles all over each other. But viruses also survive better in the lower humidity environment that’s more prevalent in the winter months.
“Lower humidity during the winter causes a virus to live longer indoors, and so all of this spending time indoors, with the closer contact increases the risk of transmission,” she said.
To avoid those situations, she explained, you’ll want to avoid being indoors with people outside of your household. And the best way to do that while still staying in touch? Zoom or one of its competitors including Google (GOOG, GOOGL) Meet, Whatsapp (FB), or Skype (MSFT).
Consumers have been jumping on Zoom thanks to its free 40-minute chat option, and the company recognizes that. It temporarily lifted the limit on Thanksgiving to help ensure more people stay home rather than travel. And it appears some, but not all, listened, with NPR reporting 42% stayed put compared to 36% last year.
But that increase in free users also weighs on the Zoom’s non-GAAP gross margins, which fell 14% year-over-year in its fiscal Q3 2021. And while the company reported revenue growth of 367%, its stock price is off nearly 14% since announcing its results on Nov. 30.
“The impact on our gross margin is partially due to the dramatic increase in usage related to the pandemic as we are experiencing a higher percentage of free users, including those in over 125,000 K-12 educational institutions that went back to school in the fall,” Zoom CFO Kelly Steckelberg said during the company’s Q3 earnings call. “It is also due to the continued higher utilization of public cloud services.”
Free users are invaluable for Zoom
So it’s not as if all of those free users are helping Zoom. Or are they?
As Jaluria points out, Zoom doesn’t see any revenue from its free users, but it does gain a few things that might be just as valuable, including name recognition—Zoom is now the go-to video app for millions—and the ability to prove why it’s different from entrenched incumbents like Microsoft and Google.
“Yes this is a short-term hit, but long-term, I think this is really good for the company,” he said. “It gets people to further appreciate the difference between Zoom and other video conferencing tools out there and it also, in the long run, creates new use cases for Zoom that they can monetize.”
Zoom has already proven that much by launching its OnZoom service, which gives businesses the ability to steam things like workout classes, instructional videos, and more via the video platform.
And while consumers may find themselves using the service less as vaccines for the coronavirus become available, the company will still be a mainstay for enterprises and people looking to learn how to make a killer mojito without having to leave their homes.
In other words, while this will, hopefully, be the beginning of the end of our video chat-powered social lives, it’s far from the last time we’ll rely on services like Zoom, and its competitors, to stay connected.
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Got a tip? Email Daniel Howley at [email protected] over via encrypted mail at [email protected], and follow him on Twitter at @DanielHowley.
More from Dan:
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