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Zoom's revenue skyrocketed up 367%, but its CFO says free users and increased cloud spending are eating into its gross margins

Zoom's revenue skyrocketed up 367%, but its CFO says free users and increased cloud spending are eating into its gross margins


Carlo Allegri/AP




Zoom reported third quarter earnings on Monday that beat Wall Street's expectations, with revenue growing 367% from the year prior.




Of note, however, is that Zoom's report showed signs of slightly lower gross margins in the quarter, compared with the quarter before — a trend that its CFO attributed to a higher percentage of free users on the popular videoconferencing app, including students, as well as higher cloud-computing spending.




However, Zoom thinks the overall trends of remote work will continue to work in its favor, even as the pandemic ends, especially because customer churn was slightly lower than expected.




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Zoom reported third quarter earnings on Monday that beat Wall Street's expectations, reporting revenue of $777.2 million, a 367% increase from a year prior.Of note, however, is that Zoom showed lower gross margins in this most recent quarter, coming in at 68.2% compared to 72.3% in the quarter before. On an earnings call, CFO Kelly Steckelberg told Wall Street analysts that this was due to a higher base of free users during the quarter, including K-12 schools, who are given complimentary access to Zoom.She also said that it's partially attributable to "the continued higher utilization of public cloud services." Indeed, earlier this year, Zoom increased spending on Amazon Web Services, and inked a new deal with Oracle for its public cloud services to support its huge influx of users. And later on Monday afternoon, Amazon Web Services announced that it was now Zoom's "preferred cloud provider," signalling closer collaboration between the two companies.When asked which had a greater impact, Steckelberg said both free users and higher public cloud usage contributed equally to the lower gross margins. She added that she expects gross margins to stay around this level for the next few quarters before it "starts coming back towards our long term targets."
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