Members of the Vermont House of Representatives in a Zoom video conference in April.
Photo: Wilson Ring/Zoom/Associated PressZoom Video Communications Inc. ZM 8.63% again raised its full-year outlook for a second time during the pandemic, cementing its position as one of the biggest corporate winners from the shift to working from home and remote schooling.
The coronavirus pandemic almost overnight turned San Jose, Calif.-based Zoom from a niche application used by companies to a tool many Americans have come to rely on to stay connected with co-workers, family and friends. Its user numbers have skyrocketed.
Zoom on Monday reported sales of $663.5 million in the July quarter, up from $145.8 million a year earlier, as it posted a profit of $185.7 million. Analysts surveyed by FactSet had expected sales of $500 million and net income of $134 million for the three months ended July 31.
Zoom on Monday said the number of its most lucrative customers more than doubled from a year ago. But its appeal has become increasingly broad based. Smaller companies, with 10 or fewer employees, accounted for around 20% of sales about six months ago and now represent 36% of revenue.
“Organizations are shifting from addressing their immediate business continuity needs to supporting a future of working anywhere, learning anywhere and connecting anywhere,” Zoom Chief Executive Eric Yuan said.
The pandemic has driven many companies to embrace digital tools on an accelerated timeline. That has lifted the fortunes of cloud-service providers such as Amazon.com Inc. AMZN 1.45% and Microsoft Corp., as well as the companies that run on the cloud, such as Salesforce.com Inc., CRM 0.57% which last week raised its full-year outlook, and Zoom.
The global boost in popularity has put Zoom in the battle for how businesses work remotely, pitting the company against far larger rivals such as Microsoft and Facebook Inc.
Zoom lifted its full-year outlook for sales to a range of $2.37 billion to $2.39 billion, with an adjusted operating profit of between $730 million and $750 million. It previously raised its outlook to full-year sales to between $1.78 billion and $1.8 billion, with adjusted operating income of $355 million to $380 million. It began the year projecting less than $1 billion in sales.
While many companies have furloughed or cut stuff, including in Silicon Valley, Zoom, which went public last year, has been trying to rapidly add personnel to manage issues its growth has brought to the forefront. It added 500 staff in the quarter, 53% more than a year ago. Bringing on more staff, including sales personnel to deal with booming demand, is one of the company’s priorities for the rest of the year, Chief Financial Officer Kelly Steckelberg told analysts.
Its stock has more than quadrupled this year. The stock that rose 8.6% in regular Monday trading advanced more than 9% after-hours following the earnings release.
The spotlight the pandemic has placed on Zoom also has had a downside, exposing security and safety shortcomings that the nine-year-old company has scrambled to address. The company embarked on a 90-day security review, bringing in outsiders to help it address some of the problems, including multiple instances of so called Zoombombing when outsiders crashed virtual meetings to often share lurid or hateful content.
The problems caused some school administrators, including the massive New York City Department of Education to halt use of Zoom. New York schools a month later approved Zoom use again after the company made security upgrades.
The company also hired Jason Lee, previously the senior vice president of security operations at Salesforce, as its chief information security officer in June.
Zoom has also been caught up in tech tensions between the U.S. and China, where Mr. Yuan was born. The company was routing some overseas calls through China where its engineering team largely is based, but has stopped that practice. It also said it was looking to open engineering centers in the U.S. Ms. Steckelberg said, though, that the company had no plans to stop doing engineering work in China.
Another challenge for Zoom has been that many of its users rely on a free service, which has weighed on profitability as the company expands its systems to handle the larger customer numbers. More than 100,000 K-12 students signed up to use the free version of the Zoom platform during the pandemic, Mr. Yuan said.
Zoom’s cost of revenue climbed to $192.3 million from $27.9 million a year earlier as it continues to add computing capacity to accommodate the surge in users. It has paid third-party cloud providers such as Amazon and Oracle Corp. for additional capacity, weighing on margins. Adjusted gross margins fell to 72.3% from 82.2% in the year-ago period.
In the latest quarter, Zoom’s strong revenue helped offset higher costs as the company added staff and made other investments to deliver growth and address some of its security challenges. But Ms. Steckelberg said margins would likely retreat over the remainder of the financial year as it hires workers and adds capacity to manage the larger scale of the business.
Zoom last month rolled out Zoom from Home—a lineup of dedicated videoconferencing devices designed to make the use of its software—now that the shift to remote work has become a more enduring setup.
Mr. Yuan said Zoom also is exploring how it can benefit companies shifting some big in-person gatherings to virtual events. Microsoft and Apple Inc., for instance, staged high-profile developer events during the pandemic as online only. Winning a share of that business is “low hanging fruit,” Mr. Yuan said, without specifying how Zoom would try to compete.
In the current quarter, Zoom said it expects sales of $685 million to $690 million and adjusted earnings per share of 73 cents to 74 cents. Analysts surveyed by FactSet have forecast sales of $492 million and adjusted earnings of 45 cents a share.
Write to Kimberly Chin at kimberly.chin@wsj.com
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