Thank you, Matt. Hello, everyone, and welcome to Zoom's earnings webinar for the Q4 and full fiscal year 2020. Joining me today will be Zoom's Founder and CEO, Eric Yuan and Zoom's CFO, Kelly Steckelberg. Our earnings press release was issued today after the market closed and may be downloaded from the Investor Relations page on the zoom.com website. Also on this page, you'll be able to find a copy of today's prepared remarks and a slide deck with financial highlights that, along with our earnings release, include a reconciliation of GAAP to non GAAP financial results.
During this call, we will make forward looking statements about future financial performance and other future events or trends, including guidance. These statements are only predictions of what are that are based on what we believe today, and actual results may differ materially. These forward looking statements are subject to the risks and other factors that could affect our performance and financial results and which we discuss in detail in our filings with the SEC, including today's earnings press release and our latest 10 Q. Zoom assumes no obligation to update any forward looking statements we may make on today's webinar. And with that, let me turn it over to Eric.
Thank you, Tom. Thank you, and welcome, everyone, joining us on the Zoom video webinar. At Zoom, we strive to empower our customers to accomplish more with our video first unified communications platform. Our success toward achieving this goal is evident in our results with the Q1 kicking off a strong year for Zoom, our first year as a public company. Kelly will discuss our Q4 results and outlook in detail in a moment.
So let me give you a few key highlights for the full year. For FY 'twenty, we delivered a unique combination of high revenue, profitability and free cash flow growth. Revenue grew 88% to 623,000,000 dollars and we exited Q4 at an annualized run rate of $0.75 We achieved non GAAP operating margin of 14.2%, up over 900 basis points year over year. We generated a free cash flow of $114,000,000 for the full year, up 3 97% year over year. This is our 1st straight year of positive free cash flow and non GAAP operating income.
Our customer metrics were also impressive for FY 'twenty, including 86% growth year over year for customers with $100,000 of trailing 12 months revenue. We also recently celebrated the 1 year anniversary of the launch of Zoom Phone, a key component of the Zoom unified communications platform that has significantly expanded our TAM. Zoomafone had an incredible start, and we are very excited about the continued momentum of the offering. Here are just a few of the key metrics to demonstrate some of the Zoom Phone accomplishments we had this past year. 1st, we are grateful to have existing customers who trust us and new customers who have looked to Zoom Phone to resolve their telephone challenges.
These factors enabled us to close Zoom Phone deals with approximately 2,900 customers who have more than 10 employees. 2nd, we exited the year with a run rate of 230,000,000 Zoom Phone meetings. Zoom Phone is a great opportunity to expand our footprint with existing customers and drive new logos for companies looking to modernize away from legacy PBX systems. Now let me discuss a few of our happy customers. We are thrilled to welcome Johnson and Johnson, the world's largest and most broadly based health care company for the Zoom family.
We are grateful that Johnson and Johnson chose Zoom to help modernize and consolidate on a unified communications platform with approximately 60,000 Zoom meeting users. As a global company, they wanted a solution that would enable Zoom to communicate reliably around the world, including growing regions in Asia. Thank you, Johnson and Johnson. I also want to thank VMware for trusting Zoom. VMware has been providing all employees globally access to Zoom meetings and a digital workspace, and we'll soon utilize a large deployment of Zoom Phone.
The easy single sound access to Zoom from any device is enabled to leverage the VMware Workspace ONE platform, allowing employees to access all the applications they need from their device of choice while ensuring security and compliance. Together with Zu, VMware Workspace ONE helps businesses support their distributed workforces by enabling a remote first quarter. Thank you, VMware. Moving to a few recent business highlights. 1st is a 2020 Gardener Peer Insights Customers' Choice Award for meeting solutions, Zoom received the top overall rating in the Voice of the Customers category.
Zoom was the only company to achieve Customer's Choice Awards for meeting solutions serving all listed regions, company sizes and industry verticals. 2nd, Okta publishes their Annual Business and Work 2020 report, a previous study of how organizations and people are using technology in the enterprise. The report highlighted Zoom as a preferred video application, posting 876% growth in the Okta network over the past 3 years. Zoom is the only company to earn the distinction of being both the fastest growing and most popular app. 3rd, we announced an expansion of our Global Channel Partner Program to add new partnerships with industry leading master agents for Zoom Phone.
4th, caring for our community is a core value for Zoom, and we are conscious of our impact on the environment. We proudly announced our top 10 Green Leaders customers who are estimated to avoid the most carbon dioxide emissions by replacing in person meetings with Zoom video meetings. In a 90 day period, the top 10 customers were estimated to have avoided the equivalent of the annual carbon dioxide emissions of 149,000 cars. Before turning the webinar over to Kelly, I'd also like to address the global impact we're seeing from the coronavirus. While this tragic situation is very fluid, Zoom is focused on using our resources to help alleviate some of the disruption and communication challenges as an alternative to in person meetings for our employees, customers and community.
I'm happy to report that all of our employees in the affected areas are healthy. Given the recent emergence and growing number of coronavirus cases in the United States, we have directed our headquarter employees to work from home unless there's a business critical need for them to be in the office. We are taking this step out of abundance of caution. Zoom is doing everything we can, especially for global educational institutions to provide resources and support to our customers and those navigating the coronavirus outbreak, including we are proactively modeling capacity globally to ensure maximum reliability amid usage increases. In China, we have removed the 40 minutes limit on free meetings, and we are providing informational sessions and on demand resources so anyone can learn how to use the Zoom platform with ease.
With the reliability of our high quality video platform, we have seen a large increase in the number of free users, meeting minutes and new video use cases. For instance, in China, health care workers and stressful conditions in affected areas are able to connect live on video with the therapeutic system. In closing, I'd like to thank the over 2,500 Zoom employees who are building Zoom into a greater company through caring for our customers, community, company, teammates and themselves. As we remain focused on creating a culture built around happiness and caring, I know we will position Zoom for future success. With that, let me turn things over to Cabbie.
Thank you, Eric, and hello, everyone. Let me start by reviewing our financial results for Q4 discussing our outlook for Q1 and the full year of FY 'twenty one. As Eric said, Q4 was a strong end to the year. We delivered another amazing quarter with continued traction for all offerings across all major geographies. For Q4 specifically, total revenue grew 78% year over year to $188,000,000 This top line result exceeded the high end of our guidance range by $12,000,000 due to our strong sales execution in the quarter.
We delivered our Zoom meetings, rooms and phone solutions to new accounts while driving major expansions with existing customers. For the quarter, new customers accounted for approximately 59% of our year over year growth in subscription revenue, while the remaining 41% was due to additional purchases from existing customers. Now let me share some of the key customer metrics for Q4. We added approximately 7,800 customers with more than 10 employees quarter over quarter and exited Q4 with 81,900 customers. This is an increase of 31,100 new customers or 61% year over year.
Customers with more than 10 employees represented approximately 80% of revenue in FY 'twenty compared to approximately 78% in the prior fiscal year. Our continued expansion in the up market resulted in 6 41 customers with more than $100,000 in trailing 12 months revenue, up 86% year over year. This is an increase of 95 customers, a record number of ads in a quarter. The high level of satisfaction and trust customers have in Zoom was evident in our net dollar expansion rate that was over 130% for the 7th consecutive quarter and our Net Promoter Score, which remained above 70 in Q4. Next, international expansion outpaced the high rate of growth in Americas revenue.
In Q4, our combined APAC and EMEA revenue grew 84% year over year and represented approximately 20% of revenue. Revenue from the Americas was up 77% year over year and represented approximately 80% of revenue. International expansion will continue to be one of our key growth initiatives in FY 'twenty one and beyond. Now turning to profitability. Once again, we were net income profitable from both GAAP and non GAAP perspectives, but I will focus on our non GAAP results, which excludes stock based compensation expense and related share based equity taxes.
Non GAAP gross margin in the 4th quarter was 84.2% compared to 82.1% in Q4 last year and 82.9% last quarter. This result was driven by the strong sales execution in the quarter and lower seasonal audio usage in Q4 due to the extended holiday season. Due to the coronavirus, we have already seen significant usage of our platform and accordingly, we will expand our capacity to meet the increased demand of both paid and free users. For FY 'twenty one, we believe our gross margins will be at the lower end of our long term target of 80% to 82%. R and D expense in Q4 was approximately $16,000,000 up 60% year over year.
As a percent of total revenue, R and D was 9%, which was slightly lower than Q4 last year. In FY 'twenty one, we plan to continue investing in our highly efficient R and D model to drive innovation through adding additional engineering talent, especially in the first half of the year. Sales and marketing expense for Q4 was $84,000,000 This reflects an increase of 57% or $30,000,000 over last year with investments to drive further growth. As a percentage of total revenue, sales and marketing was 45% lower than last year due to continued efficiency gains in marketing combined with slightly slower than expected sales hiring and the higher than forecasted revenue. We look to increase the pace of hiring up 49 up 49% on a year over year basis.
It represented 11% of total revenue, benefiting from efficiencies as we scale our administrative functions and lower our accrual for telco taxes. Non GAAP operating income was $38,000,000 translating to a 20.4 percent non GAAP operating margin for the 4th quarter. This compares to Q4 last year's result of $10,000,000 and 9.3 percent margin. The higher revenue plus expense efficiencies across all areas were the main drivers of this additional profit. Non GAAP earnings per share in Q4 was $0.15 on approximately $293,000,000 of non GAAP weighted average shares outstanding and adjusting for undistributed earnings.
This result is $0.08 higher than our guidance and $0.11 higher than Q4 of last year. Turning to the balance sheet. Deferred revenue at the end of the quarter was $231,000,000 up 83% year over year. Looking at both our billed and unbilled contracts, our remaining performance obligations or RPO totaled approximately $604,000,000 up 94% from $312,000,000 last year. We expect to recognize approximately 62 percent or $375,000,000 of the total RPO as revenue over the next 12 months as compared to 67 percent or $208,000,000 in Q4 of last year.
This is
a result of the mix shift between our current RPO, which grew 81% year over year, while non current RPO grew 120% year over year as we closed longer term deals. The RPO results also reflect some expected seasonality benefits in Q4 due to our semi annual quotas in the upmarket segment of our business. Ended Q4 with approximately $855,000,000 in cash, cash equivalents and marketable securities, excluding restricted cash. In Q4, operating cash flow was $37,000,000 up from $16,000,000 or 129 percent year over year. Free cash flow was $27,000,000 up from $6,000,000 or $368,000,000 sorry, 368 percent year over year.
As we previously discussed, these results reflect the use of cash for the purchase of shares via the employee stock purchase plan. Starting in FY 'twenty one, we expect the cadence of benefits from contributions to the ESPP to occur in Q1 and Q3 and net outflows from purchases to occur in Q2 and Q4. Now turning to guidance. We are pleased to provide a strong outlook for the full year FY 'twenty one based on our view of the current business environment, our ability to gain market share and with the momentum we built in FY 'twenty. For the full year of FY 'twenty one, we expect revenue to be in the range of 905 $1,000,000 to $915,000,000 which will be approximately 45% to 47% year over year growth.
Non GAAP operating income is expected to be in the range of $110,000,000 to $120,000,000 We expect to deliver non GAAP earnings per share of $0.42 to $0.45 for the full year FY 'twenty one based on approximately 301,000,000 shares outstanding. For the Q1, we expect revenue in the range of $199,000,000 to $201,000,000 We expect non GAAP operating income to be in the range of $25,000,000 to $27,000,000 Our outlook for non GAAP earnings per share is $0.10 based on approximately 297,000,000 shares outstanding. In closing, we executed very well and are proud of the results we delivered in our 1st year as a public company. Our high growth outlook at this scale is truly unique. Given our ROI focused business model, we continue to deliver a rare combination of strong profitability and free cash flow margins along with top line growth.
I would also like to thank the entire Zoom team for their hard work this past year and look forward to achieving additional market share gains and growth as we deliver happiness to our customers with our unified communications platform. With that, let's open it up for questions. If you have not yet enabled your video, please do so now for the interactive portion of this meeting. Matt, please queue up our first question.
Our first question is from Nikolay Beliov from Bank of America Merrill Lynch.
Hi. Thanks for taking my questions and congratulations on solid results here. And I just wanted to thank Zoom for playing an important role in dealing with the tragedy with this virus. My first question is for Eric. This virus situation, this virus tragedy, do you feel like it's elevating the customer conversations and it's leading to better appreciation of your business model?
Do you think like it's maybe a permanent elevation of spending intentions or it's a temporary thing? And question for you, Kelly, did you see impact from the virus in Q4 results, maybe in billings and RPO? And how did you incorporate any potential positive impact on the business in the guidance?
And Nicky, that's a great question. First of all, I like your wish background. Where are you now? So I think, first of all, I don't think that's temporary. The reason why is I mean, in terms of experience about using the video conferencing like Zoom, look at the companies Silicon Valley, like Envision, Zapier or GitterLab, which is great companies.
They do not have a single physical office to really understand how to enable remote workers to work together. However, if you look at our companies in other parts of the world or maybe outside of California, quite often, we need to tell them, we do in the future of communication, you need to enable video, and we need to explain that. But given this coronavirus, I think over the night, almost everybody really understand the need of tools like this. This will dramatically change the landscape. I truly believe in the future, AirVantage, they will turn on to video for the remote workers for the collaboration.
In terms of our results in Glyde, for Q4, we did not see any impact directly related to coronavirus. And as a reminder, we have definitely seen an uptick in usage, but a lot of that is on the free side. So it's very early to tell whether or not that's going to convert long term into paying customers. As we mentioned, we are seeing impact and continue to build capacity to ensure that we can support this increased usage. So we are seeing impact on our gross margins, which is why we're guiding you through the lower end of our range for next year.
Yes. By the way, I mentioned to some of my friends, if I start over the company, we're not even going to have a single physical office. A lot of people, as they mentioned, are you crazy? Now I realize that's reality now.
Next question please, Matt.
Next question is from Bhavan Suri with William Blair.
Hey guys, thanks for taking my question. I want to touch a little bit on the vertical sales effort. You've talked a lot, Eric, about sort of the adoption of Zoom taking hold on a vertical by vertical basis. Just strategy as you think about the verticals, strategy of the sales force, the go to market and then the applications you're integrating, how do you think about that given sort of the increasing presence in enterprise?
Yes. So that's a good question. So when we started, we do not know which vertical market we are going to focus on. Unfortunately, we saw quite a few high ed customers who deployed Zoom. Stanford, a Continuing Studies Group, was our 1st beta customer.
And that's why our first vertical market is high ed. And several years ago, we found a great use case, which is health care customers because they are looking for a solution because we talked about telemedicine, telehealth for a long time because there's no good solution until they found Zoom. And we also keep our compliance, the product experience, integration with Epic. I think that's a very, very important vertical market. Also, at the same time, we also last year, we got a federal representative certificate.
We also expanded into the public sector market by focusing on enterprise, health care, public sectors and then also, I think, later last year, we also expanded into the financial institutions. I think all those vertical market use cases are a little bit different, but our functionality, our feature flexibility can truly help
them. That's helpful. And I want to touch a little bit more sort of then strategically, if we take a step back. We've talked about convergence and you've discussed this in the past, you've discussed in calls, but convergence video voice we've talked about that. We know collaboration is a piece and again you're partnered there.
But as you think about this idea of remote disconnected people, all of it ties into collaboration. How do we communicate? How do we collaborate in Word, documents, PowerPoint, whatever you're using? And you think about Zoom's place, say, it's video, sure, the Zoom phone. But if I was to fast forward, do you think ultimately that collaboration space converges?
And where do you guys end up sitting in terms of the content piece? I'd love to understand how you think about the content part of the collaboration piece, not video and voice content, obviously, but we're talking about the data piece. How do you think about that? And I know you're going to say partnership, but I'm talking 10 years out as opposed to say the near term.
I think for the foreseeable future and video and voice, unified communications, that's a huge market, right? Always $1,000,000,000 market. I think we are going to be very busy, right? Especially for enterprise marketing to the cloud, video voice will be converted into 1 service. We are going to laser focus on video voice.
But at the same time, we also build a platform. Our marketplace, there are already over 200 applications. We would like to integrate partner with other collaboration vendors with a focus on the content like Dropbox and a Box, like Okta or Microsoft. I think that's a way, right? Customer, they are looking for the best way to service, right?
When it comes video and voice, I think that's our game.
Next question please, Matt.
Our next question is from Sterling Auty with JPMorgan.
Yes, thanks. Hi, guys. So with the surge in free users, are you actually developing programs that will work on conversion of these potentially temporary free users into permanent paid users?
Yes. That's a great question. First of all, we all feel sorry about those who suffered from coronavirus in China and all over the world, but still grateful to those doctors who are having the word to deal with the coronavirus. I think that's why we really focus on how to help those companies, those Nordic workers to connect because in this critical time, I would say, empathy, humanity and support for each other is more important, the revenue than growth. At this moment, laser focus on offering the best service to have the people in the world.
We even never thought about monetize because that's not our focus. That's not important. If we truly care about the customers, truly deliver value to the world, I think all those will follow in the future.
Got it. And then one follow-up on Zoom Phone. You talked about the almost 3,000 Zoom Phone customers. Where are you finding the sweet spot in terms of
the size of the companies that are really gravitating towards moving over to Zoom Phone. You mentioned VMware in your prepared remarks, but is there a sweet spot for where Zoom Phone is heading?
I figured in my view, I figured everywhere is the sweet spot now. So because even our installed base from SMB all the way up to the line, enterprise customers, when we talk about Zoom Phone, after they test that, they say, Wow, that's exactly what they are looking for. We see the greater customer and adoption from SAP customers, from VMware as well because experience is very different, right? If you look at all other phone system, no matter on prem phone system or cloud based phone system, ultimately, you just can make a phone call, By studying, I call your phone number, we can only talk. We really cannot do anything else.
With Zoom, phones are very different. One more click, I can see you. I can share the content. That's a totally different architecture. That's why if you look at our installed base, after test our solutions, they really like our experience.
No any other solutions can match that experience.
Thank you, Sterling.
Next question please, Matt.
Our next question comes from Meta Marshall with Morgan Stanley.
Matt, she's on mute still.
I did unmute her. Hey, Meta?
Yes. Can you hear me?
Yes. Okay,
great. Sorry about that. Eva, you put out some announcements over the past couple of days on additional geographies as far as Zoom PhoneWords. Just wanted to see whether you're whether we should consider you guys covered in the major regions you'd like to be deployed in as far as Zoom phone reach for now? And then maybe Kelly, you addressed kind of the gross margin impact should be mostly from kind of capacity increases from some of the free usage right now.
But should we consider some of that gross margin impact from Zoom phone adoption as well? That's it for me. Thanks.
So, yes, we're super excited that we added 11 new countries into GA for Zoom Phone, taking us to 18 total countries that were GA and additional 25 in beta. So we're getting close to I think the coverage that the goal is to be in close to 50 countries by the end of this year, which is really what we're striving for. And a couple of key markets like India and China, we're still continuing to work on. And then in terms of the gross margin impact, we really haven't seen impact from Zoom Phone. As we talked about, it's still small relative to the overall usage that it's not having an impact on the gross margins.
It's really coming from the increase that we're seeing globally in terms of in the last month or so related mostly to coronavirus.
Our next question is from Heather Bellini with Goldman Sachs.
Great. Thank you so much. I just wanted to follow-up on Zoom phone. I mean, in a really short period of time, you've obviously had some great success with that rollout. Eric, knowing that you're constantly listening to customer feedback, what are the top R and D priorities for Zoom Phone as you look ahead over the next 12 months?
And also, do you see any benefit on the horizon by Avaya's decision to partner with RingCentral instead of kind of going down their own path? So as those customers look to migrate, do you see an opportunity there? Thank you so much.
Yes, Haizuo, thank you. I know you are probably are traveling, so next time, we can see you much better. And that's a great question. So in terms of Zoomafu effort, we do not think that's brand new application because when we build a platform, the first application that is built upon a platform is video conference. The second application is the Zoom Phone.
So many of us share lots of components, right, when we build the Zoom Phone system. Having said that, there are some features missing and also international coverage as well. We are making very, very good progress, as Kelly just shared. In terms of the priority this year, we are just adding a little bit more features like recently we announced SMS, the beta, right? And also add a lot of features.
All those features, I do not see Rocket assess, really just a prediction level work. The harder part already done, right? That's why we have a high confidence who can deliver a much better solution than any of our potential competitors. So regarding the Avaya RingCentral deal, I think from our perspective, we really focus on our installed base, focus on the video and voice convergence. That's the kind of our vision.
And if today, look at some of the customer take VMware for example, right? They deployed on prem solutions and some other customers also deployed maybe the on prem Avaya solutions. When they evaluate which cloud is PDF solution to go, if they do the test, they will know that Zoom experience is better. It's better than any other cloud with PPS vendors. We have a high confidence.
As long as customers try our solutions, that's a solution to go.
Thank you very much.
And Keith, I think we had a good answer.
Next question please, Matt.
Our next question is from Brad Zelnick with Credit Suisse. Hey, Brad, you're unmuted.
Great. Thank you so much. I don't know if you guys can see me, but it was nice to see you.
Good to see you.
Fantastic. Great. So congrats on all the success thus far with phone. We've seen some of your competitors really leverage the channel to drive success. And I was wondering how should we think about your willingness to do the same?
Yes. So we're really excited to announce that we just yesterday, I guess, launched our master agent program for phones specifically and we've signed up 2 big partners in Infosys and Avond. And the more formal launch will be next week at the channel is it a channel conference? Yes. Thank you.
Great. Thank you, Kelly. And maybe just a follow-up on net expansion. It remains above 130%, but based on our math, it would seem to be the lowest level of expansion that we've seen thus far. How much of the deceleration is due to large lands?
And how should we think about expansion rates from here?
So there's a couple of things that contribute to our net dollar expansion rate. It's land and expand, as you touched on, as well as Zoom Phone. So we really see great opportunity for that number to be influenced by Zoom Phone as well as Land and Expand is a critical part. I mean, it does vary quarter over quarter depending, as you just indicated, on the size of the initial deals. But we're confident for the long term that it will stay at above 130.
Next question please, Matt.
Our next question is from Tom Roderick with Stifel.
Hi, everyone. Thank you for having me on. Thanks for taking my question. So Eric, I apologize, I jumped over and I think you're talking about this right as I jumped over. But obviously your customers are very excited to be able to use Zoom during a challenging time.
At the same time, obviously you have a pretty nice sized workforce over there in China as well. And I'd love to hear just a little bit more about how you're able to still communicate what your procedures are with your R and D staff. And as you talk about building up more R and D dollars in the year 2020, Help us understand where geographically you're thinking about that in spite of all of the challenges we're facing globally right now with the coronavirus taking place?
Yes. That's a great question. So if you look at our R and D resources, the core R and D are here in our headquarter in San Jose. And we also have a team in China. And of course, I managed a web as engineer team before.
I'm very familiar with that process how to manage the offshore team. I mean, inside of that, actually, we are using Zoom video every day. So meaning every engineers anytime, anywhere they can work, for sure have a security process, right? And we are already familiar with remote working practice for a long, long time. During the coronavirus, a lot of other business, they have to work at home.
I think quite often, we got a feedback. They really do not know how to do that, but we know how. That's why over the past several weeks, now they are most of them are already back to work. Over the past several weeks, when they went back home to work, there's no any impact whatsoever because they already know how to do that, right? And here, we also did not see any impact.
We're still working together with our team. For sure, we all know how to use Zoom, right? I think the impact to us is very minimum. And for us, this year and next 2 years, I think we're going to hire more and more resources here for the new services, a lot of artificial intelligence features and the core capabilities because the core IP, R and D still are developed here. So that's why we further expand our R and D team here in our headquarter this year and also in the for the foreseeable future as well.
Great. And a quick follow-up for you, Eric, just in thinking about, you've been doing this a long time. You've seen a number of these sort of disruptive moments in tech. This is clearly a disruptive moment in the global economy. When you think about your conversations with your biggest customers out there, how are they talking about the way that they want to expand with their key partners over the next 1 or 2 or 3 years?
And do you think of this as an opportunity to really sort of shift some of those into a big digital transformation as they sort of reevaluate how they spend their money coming out of the back end of this whole situation?
Yes, that's a good question. So by the way, today, we also have our annual analyst meetings as well. And in addition to talking with our customers, I think your observation is right now. I think this is a very critical moment. So meaning, I think more and more businesses, they are going to leverage video conferencing service like Zoom and to drive productivity.
No matter where those employees are, they still want to get a job done. However, when it comes to video conferencing, the key is that you have to make it work anytime, anywhere with any device. Otherwise, they are not going to use it. And because of this coronavirus, a lot of businesses either have a remote employees. After they tried Zoom, 1st time, a lot of users, 1st time tried Zoom.
They said, Wow, it just works. I think that because of that, I think this is a very exciting time in terms of how to further drive the video conferencing adoption. I think this is very sustainable.
Wonderful. Thank you very much.
Thank you, John.
Next question please, Matt.
Our next question is from Pat Walravens with JMP. So Eric, I mean, looking forward
to having the COVID-nineteen result. And when we get there, I was wondering if you could help us think a little bit about what the long term opportunity is like for Zoom in China. And maybe just to put a couple of ideas there, how might pricing be different? How might the competition be different? And how might user behavior be different?
Yes. That's a great question. So you look at our revenue, right? And also the revenue from Asia and China included is relatively small, right? It's kind of still driven by North America and Europe and Japan, Australia.
I think that because of this coronavirus, I think the business in China realized, I think they need to have more tools, not only Zoom, but more and more the B2B tools to drive their productivity. Used to be, you can't hide, see the 10 people, right? You do not need to deploy HR tools. But now you really cannot have those 10 people anymore. They all bring back to the home, right?
I think this will further boost the B2B SaaS application adoption in China. Having said that, really, Congress is a tool they all understand. We also have some local competitors, but the market is there, potential is big. And also, we're in the process of navigating through several options, right, to see which option is better because over the past several years, we really wanted to go to China market. However, I do not think the time is right.
For now, I think the time is right. We needed to make sure we have a sustainable strategy to expand into China to have the local businesses there.
And if I could ask, since we're all starting to have to work from home remotely a lot more, do you have like 1 or 2 key pointers you would give us about how to do it effectively? Does the camera have to be on all the time?
So first of all, I do not think you had a home. I did not realize.
That's the first one is get a virtual background. I think that helps a lot.
I think that's pretty much actually. Casio, we have all the features built in, right? And when you just clear on some features, you will see that. Like, I think some my favorite feature is to touch up my appearance, right? And also, with the Witcher background, a lot of features of Beauty and also small like a brick order session as well and a lot of feature of Beauty over the past several years.
I think finally, our customers realized it's time to kind of play around all the features with beautiful
Thank you,
Pat.
Can we
have the next question, please?
Our next question is from Ryan McWilliams with Stephens. Ryan, you're unmuted.
Perfect. So
thanks for taking the question. So how do you see the market trending for cloud voice pricing going forward? Is there a temptation on your end to reduce pricing for Zoom Phone, especially given the fact some of your competitors have started offering their own video capabilities for free?
Well, we believe that we are already very competitively priced from both a Zoom phone and a Zoom meetings perspective against the market. And we haven't seen price pressure beyond kind of the normal discounting that we typically do. And we feel really good about where we're sitting. The way that we've historically brought value to our customers is by adding more and more features, both meetings and phone, and we will continue to do that approach across all of our product lines.
So in terms of your comment about some of the vendors offering the free video conferencing, I can tell you it's very easy. It's extremely easy to build a very, very basic video solution with some open source. However, to have a global scale, very secure, reliable 5 nanometer availability, it just works, it's extremely hard, right? I'm also already in this real time collaboration base almost 23 years. Today, you look at where we are now, there's still a lot of things that are not done yet.
I think free does not mean your customer, they want to use that as a service. Great.
And just kind of to that point, with 230,000,000 Zoom Phone voice minutes and video minutes also expanding with Zoom customer growth, how do you see the AI opportunity for Zoom to add features around transcription around this influx of usage?
So in voice and video is the same platform, but in voice quite often, if you we've already shared the same the platform inclusion, right? We have any inclusion and plus, we're working on smaller customer key the improvement based on the key offered by customers. But sometimes, for voice, it's a little bit different. If all you use Zoom, we can offer very secure the service. However, if you want to dial somebody else, the cell phone number or the PSC number will go through the traditional PSC network, I think it's really hard because it's completely out of our control.
Next question please. Our next question is from Zane Chrane with Bernstein. Zane, you're unmuted. We'll come back to Zane. Okay.
All right. Next question is from Will Power with Baird.
Great. Thanks. I guess first question is, as we think about the coronavirus impacts, any color you can provide in terms of the geographic spread of traffic? How much of the traffic increase was in China versus in other geographies? And I'd love to hear anything more on some of the more unique use cases you've seen.
Yes. I can start. Feel free to chime in, Shikik, Kiley. I think over the past several weeks, first of all, we see a very, very big jump from users in China. And the good news, we have a very flexible backend architecture.
We can auto scale our servers. That's why within several days, and we add a lot of capacity and really focus on the product experience. The customer, they are very, very happy. And also afterwards, you see like we see the usage not only for China, for Vietnam, for Singapore, for Japan, all follow over the past several weeks. Especially, I think, if you look at APAC, almost every country uses in China a lot.
And since last week, we see the usage from Europe. And here as well. It's kind of for take the turn to see the users drop.
I think in terms
of these
cases, we talked about the doctors getting therapy. We also, of course, see lots of educational institutions that have stopped either study abroad programs or having all of their students study from home as well as we've seen a few of our customers here that have already moved to requiring their employees to work from home as well. And so we're seeing an increase in that sense.
And virtual events too.
Oh, yes. Lots of virtual
events. That's
Yes. We're use case and service. We also not only do we offer the video meetings, we also offer the video webinar platform. It's pretty powerful. And the city of Wuhan, where they have tens of 1,000 doctors for a long time there and depression, anxiety and the Tsinghua University, Nagoya University in China also with some other psychologists, they use Zoom and to train the doctors there as a great use case and it really made those doctors in Wuhan very, very happy.
Okay. And then if I could just get one question in on Zoom Phone. As you look across the broader unified communication space, there seems to be increased interest with bundling contact center. I wonder if you look at your 2,900 customers, any comments as to how many are taking contact center? How do you think about the partnership model there long term versus having grown platform?
Yes. You're right, Don. So we focus on our core video and voice capability in terms of content center. I think it's very different market from our perspective. However, from a customer perspective, they like to have very seamless integration.
That's why we partnered with Five9 and also inContact, Twilio and Genesis. And specifically about Five9, the CEO, Robin, he's a great leader, really understand collaboration. And the 2 team work together very well. And like Zoom, also use our video conference our Zoom phone system. We also deployed 59, and the solution works very well.
I think there's a huge opportunity between Zoom and 59. So ultimately, we wanted to partner with other contact center solutions.
Next question, we're
going to go back to Zane, is from Zane Crain with Bernstein.
Yes, can you hear me?
Yes, Zane.
Hey Zane. Good afternoon. Congrats on a great quarter. So I wanted to dig into the non business customers a little bit. I know that's only about 20% of your revenue at the time of IPO, but it's an important group in some ways just because it had a much higher annualized churn rate than I think your business customers typically do.
Can you give us a sense of what portion of the revenue non business customers comprise now and what that should look like over the next couple of years?
Yes. It's actually been really steady at that same 20% of revenue for FY 'twenty.
Okay. Great.
I mean, I think over time, as we continue to focus more and more on the up market, we'll see that overall percentage decrease, but it's been pretty steady and consistent over the last year.
And just a follow-up to that, have the renewal rates, the contract renewal rates either on a customer or dollar basis changed over the last year? I know you talked about the net expansion rate, but before including up sell and seat expansion, how should we think about the trend for just contract renewals?
Yes, we haven't seen any trade change. It's been pretty consistent. It's holding pretty steady.
Got it. Okay, great. Well, thanks very much and congrats on a great quarter.
Yes. Thanks, Zane.
Thanks, Zane.
Thank you.
Our next question comes from Alex Zukin with RBC.
Hey, guys. Thanks for taking my question. Congratulations on another very successful quarter. Maybe first for Eric, how important particularly in the larger deal opportunities as you think about the future of work and the compression of that adoption curve given something like the coronavirus, how important from a go to market perspective in some of those larger deals are your relationships with partners like Slack, like Dropbox that kind of enable your customers to create an entire experience around this area?
Yes. That's a great question. I think, first of all, I'd like to take a step back to share with you what's happening about the decision making process for a lot of investors because over the positive 10 or 20 years, normally, CIO will make the final decision. Today, it's very different. Almost 50% of workforces today here are millennials, right?
And they've grown up along with a smartphone. And that's why if people do not like your service, no matter what, they are not going to use your service. This is their habit, right? This is their experience. Outside of that, I think land expand, influenced by the bottom up users is extremely critical.
Like quite often, they already use the Dropbox, right? Already use Slack. And if you want to find out the best business service like video and voice, also deploy Zoom. That's why we have very, very kind of integration with Dropbox. Within Dropbox interface, you can launch Zoom.
Within Slack, you also can launch Zoom. I think that's a trend. Best Beauty Services will drive the adoption, will truly deliver happiness to large and large customers.
That's great. And then maybe Kelly, one for you. If I think about current RPO and RPO, I think we're looking at the current RPO bookings of 58%, compare that roughly to the 46% guide for revenue growth next year, help us bridge that a little bit. And then in the script, you also mentioned some seasonality benefits to RPO from semiannual quotas in kind of the upmarket segment. Can you maybe unpack that and explain that a little bit?
Yes. So just a quick reminder that RPO is not an absolute directional metric for us due to there's a significant percentage of our in terms of the seasonality, if you remember, when we talked about this in Q3, we saw some seasonality in terms of it being somewhat flatter Q2 to Q3 and now we're seeing that benefit in Q4 due to the fact that our upmarket teams are on 6 month plans. And so what we see is as they get to the end of their 6 month plan and they have the opportunity obviously to overachieve and then go into accelerators that we see a typical linearity toward or seasonality towards the back half of their 6 month plan. And that's what you're seeing in some of that increase for the RPO for Q4. Perfect.
Thank you, guys. Thanks, Alex.
Our next question is from Phil Winslow with Wells Fargo. You just joined back in. We'll move we'll come back to you, Phil. Next question is from Ryan Coons with Rosenblatt. Brian, you're unmuted.
Brian, do you have your phone on mute? Yes, it is.
Hi, guys. Thanks. And congrats on a great quarter.
Thank
you. So as you
look at your video seats, you're winning. Can you estimate the percentage that are defections from other platforms versus greenfield wins? And then in the broader picture, are you seeing changes in the competitive landscape kind
of given your increasing market leadership there?
I think if you look at all kind of report, right, over the past several years and Zoom is becoming the most really confident locations. And look at our customers, quite often, especially for large enterprise customers or medium sized customers, they already deploy other solutions. But they do not use that very often. And it's also the different experience. It's more like a web conferencing or audio conferencing.
And Zoom is a true with Club Video First, the solution. And that's why we all want to switch to Zoom. It's not like from one solution to other solution. I believe this is a totally different service. And we are in a different category because more like a Tesla car and other cars.
They are all cars. They're totally separated in a different category. That's why I think from a macro perspective, I would say every customer, no matter which other solutions they're using today, that's a greenfield, right? That's our experience, yes.
Great. Thanks, Aaron.
We're going to go back to Phil Winslow. So our next question is from Phil Winslow with Wells Fargo.
Hey, guys. Congrats on a great quarter. Just wanted to focus on Zoom Phone. Obviously, you guys continue to see great traction there. And I remember when you first launched it, you'd say, hey, you said, hey, it wouldn't take a while to get some of these bigger customer wins knocked down, but it seems like you've done that.
When you think about just sort
of the
functionality of the offering, is this sort of the eightytwenty rule where you've got 80% of what you need to actually knock down some of these big accounts and the 20 percentage is for maybe let's say like a small percentage of base. Maybe help us think about sort of where the functionality is right now? How that affects sort of the types of customers you can address and sort
of where you see this going forward?
Yes. So, Phil, that's a great question. So maybe I'd like to share with you a little bit analogy about what's going on in the smartphone industry, right? So I the first time I saw the BlackBerry, I know that all the feature phone that area is over and all those feature phone died because the BlackBerry does offer something no any other feature phone can offer, which is the e mail. I fell in love with BlackBerry for many, many years until I saw the iPhone.
When I saw the iPhone, I knew BlackBerry is over because the reason why they have a marketplace, all kind of applications, even if the iPhone does not offer some of the functionalities that were already available for the battery, but that's a trend in the future for marketplace. Something similar is happening in the cloud with PBX market. On the one hand, you are so right. We lack of some of the features. On the other hand, when customer look at our product experience, look at the unified collaborating experience, and with one more click, they can screen share, you can upgrade it to video call.
They say, wow, that's the future. That's something so critical. In terms of other minor features, they knew we can add it. That's the reason why we look at iPhone today and what is the BlackBerry. I think that's the same story now.
Thank you, Phil. Matt, can we have the next question, please?
Yes. Our next and final question is from Jonathan Kees with Summit Insights Group.
Great. Glad I made it in. Thank you for taking my questions. And I'll add my kudos to your strong numbers. And yes, and also commend you for the humanitarian efforts you're making there.
My questions are, I guess, if you can update us in terms of your partnership with RingCentral, Five9, the partners where you're quite labeled, basically any of the partners where they're the lead to a deal and they bring you in. In the past you talked about how that's trending and trending well. You can update us on that and quantify anything for us, that would be great. And then I have one other question.
Yes. Thank you, Jonathan. By the way, we have a very cool feature called a virtual background, if you want to try. Okay.
I'm still learning it. So I may need to open in terms of staying in the background. Right now, I have Pumble Home in my office.
I'm happy to follow-up
with you, Jonathan, make sure you can get it. Not a problem.
Your IRIT support, great. Yes. Sales and sales. And sales. Okay.
Yes. Speaking of partnerships, take Five9, for example. I think this year, we'll achieve more because the 2 teams, we enjoy working together, right? And also, I know Ron very well is such a great leader. I think more and more customers would like to, Hey, I want to deploy Zoom phone.
I also want to pick up a contact center solution. Five9 is great as a partner, right? And along with some other contact center partners as well. In terms of RingCentral, they were a very good partner over the past several years. And they I think they're pretty smart in terms of partnering with the best with the service, right?
And that's why we build a wider limited solution for them, which is RingCentral Meetings. That partnership really happened with RingCentral, right, in terms of becoming the unified communication market leader because they have a best video conference service, right? However, I think from our perspective, and we would like to really look at our customer and look at what's the best experience we can offer. And as we've said, over the past several years, they try to build their own video conferencing solution. I don't know how good that solution is, but we focus on our customer experience.
And in terms of revenue from any of our partners, it's relatively small, right? And customers, they would like to deploy the unified solution from OneMain or from us, VideoVoice, the same architecture, same experience. And you will see more and more overlap between Zoom and RingCentral, in particular, after they announced their video conferencing service. I'm pretty sure that experience is not as good as Zoom.
I'm sure. I'm sure. And then if I can, I guess it's more out of curiosity? You already talked about have your headquarters employees working from home because of COVID-nineteen. You have most of your sales are direct sales, their field reps are knocking on doors.
I guess, are you seeing a impact there? And are you going to change the strategy there? Or is that what you're doing with like channel and getting others to start this on for you? Thank you.
I don't think there will have any impact whatsoever. The reason why our sales rep are pretty creative And we also support a video background. It's suitable for a video in the office and a user video background. I even do not know where they are. And seriously and seriously, and I feel like I still in the office.
And I would say there's no any impact, probably even better because you can save the community time on where they live, for office, probably we should increase the quota for them. I mean, I'm kidding.
Okay. All right. Sounds great. Thank you so much. Thank you, Joseph.
Take care.
Well, Eric, I
think that's the last question, Matt. Is anyone else out there?
That was our last question.
Great. Do you want to have some closing remarks and just thank everyone, Eric?
Yes. First of all, thank you all for your time. I really appreciate for your support, and we will do all we can to deliver much better service to serve our customers well. Thank you. Thank you, everyone.
Bye, everybody. Thank you.
Appreciate it. Thank you.