Covid-19 induced stay-at-home policies boosted the use of Zoom Video Communications (NASDAQ:ZM) video product, which now attracts hundreds of millions of daily participants. On Thursday, 7th of May 2020, Zoom announced that it has just made an acquisition of “Security Keybase” which will help in securing its platform.
Zoom daily meetings participants surged from 10 million to 300 million in the first four months of 2020 as the pandemic forced more people to stay at home, so it was not surprising for the company to scale up its infrastructure. Zoom is one of the trending apps blanketing the world by becoming the go-to for many schools,colleges and businesses in order to replace face-to-face meetings.That has not been without challenges. As the number of users increased, hackers came into the picture who sought to disrupt the proceedings by crashing classes and meetings with obscenities, racism and by other unfair means. Schools, companies, and even government agencies have banned using zoom to conduct official business meetings because of security concerns.
During the last 12 months, net income attributable to common stockholders reached $21.7 million as compared to the previous year. And after some ups and downs, the stock price exceeded $90 on Feb. 14, 2020, long before the World Health Organisation declared COVID-19 as a pandemic on March 11. The spectacular results triggered the interest of investors too. Zoom’s stock price jumped from 114 as on the last day of February 2020 to 157.80 as on May 8, 2020.
Zoom rushed to reassure its users and investors, by redirecting its research and development efforts to focus on security issues. Last month, amid criticism of lax security on its platform, zoom instituted a 90-day plan to bolster its security and win the trust of customers with the help of cyber-security firms such as Crowd strike and Dark tower, as well as former security experts from Facebook(NASDAQ: FB), Microsoft (NASDAQ:MSFT), and Alphabet’s Google (NASDAQ:GOOGL).
Now the company has taken a major step to solve this crucial problem by acquiring secure messaging and file-sharing key base. This key base team will identify, address, and enhance security and privacy on the platform. Zoom’s security team will be headed by the co-founder and developer of the key base, Max Krohn.
According to the company’s CEO Eric Yuan, this acquisition will result in positive outcomes as it attempts to accomplish the creation of a core private video communication platform that can be scalable to hundreds of millions of participants, which will also offer flexibility.
Prior to the coronavirus outbreak, Zoom’s revenue growth rate was already astonishing. During its fiscal year ending JAN 31, 2020 revenue increased with a higher rate which is up to 88% year over year. Zoom reported its Q3 2020 revenue as $166.59 million.
The fact that users, investors, and enterprises are talking about Zoom does not mean prudent investors should buy the stock, though I believe that the coronavirus pandemic may have accelerated its profit trend but company’s trailing 12 months revenue indicates that the market expects the impressive growth to continue over the long term despite of competition and security issues.Besides this, I believe that surge in meeting participants will result in revenue growth as many users may take advantage of the company’s free offerings.In fact, profitability could diminish, at least in the short term and the company should expand its infrastructure to support sudden increase in the use of its solutions.
Thus, given its sky-high valuation due to the explosive growth of its popular video solution, Zoom has become quite a useful source and a talking point for people around the world. The acquisition of Key base is a big step toward locking down its platform, a step that Zoom will have to get right to keep a growing list of competitors at bay and to be the first choice of its customers.