By Emily Bary
The COVID-19 outbreak brought waves of new users to Zoom Video Communications Inc. and Slack Technologies Inc., but this week we find out how many are actually paying for the services, and how much it is costing the companies to support them.
Zoom /zigman2/quotes/211319643/composite ZM +0.35% will report quarterly earnings Tuesday afternoon, after announcing in late April that it had 300 million daily meeting participants as companies and schools around the world rushed to adjust to widespread remote work. Slack /zigman2/quotes/212180539/composite WORK -0.56% Chief Executive Stewart Butterfield has already disclosed to MarketWatch that “simultaneously connected” users on his software grew by 25% in a single week in March, and that Slack added 80% more many paying customers in two months than it had in full previous quarters. Slack reports Thursday afternoon.
Since both companies offer free plans with more limited feature sets, it’s still unclear just how well Zoom and Slack are capitalizing on work-from-home trends financially, even as their shares have soared in recent months. And both have had to secure the computing power necessary to support those users, adding costs that will eat into Zoom’s potential profit and further erode Slack’s losses.
For more: We need tech more than ever, but that doesn’t mean we are willing to pay for it
The results will put nearly $50 billion in freshly minted valuations to the test. Zoom’s market capitalization crossed the $50 billion mark on its own for the first time Friday, and shares — which sold for $36 in its 2019 initial public offering — closed higher than $200 for the first time Monday. Slack is trading for its highest prices since the stock debuted last June, and is now worth more than $20 billion after riding up 68% so far in 2020. Combined, the two stocks have added roughly $48 billion in market cap since the beginning of the year, which tops the entire valuations of other prominent cloud-software names like Workday Inc. /zigman2/quotes/201157610/composite WDAY +0.62% and Atlassian Corp. /zigman2/quotes/207177221/composite TEAM +1.54%
Zoom has not emerged from its sudden success unscathed. Look for Chief Executive Eric Yuan to address any fallout from safety and security lapses on its platform after Zoom began facing heavy backlash in March about its encryption claims, as well as default settings that allowed those who weren’t hosting a meeting to share their screens and potentially broadcast inappropriate messages.
For more: Zoom Video lurches from boom to backlash amid privacy issues, ‘Zoom bombing’ attacks
The criticism prompted some companies to ban the use of Zoom for corporate purposes. The New York City Department of Education also stopped using Zoom, though the school system eventually came back to the service with new security features , such as letting meeting hosts mute participants without giving them the option to unmute. Zoom ultimately made changes to its default settings for all users, clarified its encryption policies, and prioritized security improvements within its feature-development teams.
“We now have a much broader set of users who are utilizing our product in a myriad of unexpected ways, presenting us with challenges we did not anticipate when the platform was conceived,” Yuan said in an April blog post , one of a number of public writings about the company’s response to the backlash.
So how many companies did stop paying for Zoom as a result of security issues and Zoom-bombing scandals? Cantor Fitzgerald analyst Drew Kootman doesn’t believe it will be important.
“We do not expect a material impact from recent privacy/security issues as we believe the company is taking appropriate steps to improve the problem,” he wrote in an April note to clients.
Zoom’s rivals in video meetings have also pointed to big spikes in activity in recent months: Alphabet Inc. /zigman2/quotes/202490156/composite GOOGL -1.34% /zigman2/quotes/205453964/composite GOOG -0.64% disclosed that its Meets platform has seen a “thirtyfold increase” in usage since January, and Cisco Systems Inc. /zigman2/quotes/209509471/composite CSCO -2.00% said Webex was running at three times its February capacity. Microsoft Corp.’s /zigman2/quotes/207732364/composite MSFT -0.56% Teams saw “more than 200 million meeting participants” in a single day during April.
For more: Microsoft adds as many users to Teams in a week as Slack has in total
Teams is seen as a direct competitor to both companies, but especially Slack, with its ability to offer a similar text-based service and video meetings to corporate clients who may already have access through their corporate Microsoft Office cloud-software packages. Slack may have a more youthful vibe in the world of enterprise messaging apps, but still trails behind Teams in terms of its user base.
MKM Partners analyst Rohit Kulkarni believes there is room for multiple services to thrive in the market.
“The likelihood of a ‘winner takes most’ competitive dynamic outcome in the enterprise collaboration software market is quite low,” he wrote. Kulkarni models 19,000 paid net additions for the fiscal first quarter, compared with 22,000 for the entirety of Slack’s last fiscal year.
See also: Slack CEO details ‘most productive’ week in company history, hits back at Microsoft
Slack will be joined Thursday afternoon by DocuSign Inc. /zigman2/quotes/205992027/composite DOCU +5.30% , which should also be benefiting from at-home trends due to growing need for e-signatures on legal documents. Other software companies expected to report earnings this week include CrowdStrike Holdings Inc. /zigman2/quotes/212513426/composite CRWD +1.49% , Smartsheet Inc. /zigman2/quotes/207006006/composite SMAR +2.75% , Cloudera Inc. /zigman2/quotes/209152367/composite CLDR -0.25% , Guidewire Software Inc. /zigman2/quotes/206022311/composite GWRE -0.61% , MongoDB Inc. /zigman2/quotes/203302825/composite MDB +2.92% and PagerDuty Inc. /zigman2/quotes/210571191/composite PD +3.60%
This article has been updated to include a more recent figure for Zoom’s daily meeting participants.