Zoom earnings, here's what to expect

Yahoo Finance's Dan Howley breaks down what investors can expect from the Zoom Video Communications earnings report after Tuesday's closing bell.

Video transcript

ALEXIS CHRISTOFOROUS: We are away-- awaiting Zoom Video Communications earnings. They are out after the bell. Here to give us a preview is our tech correspondent Dan Howley. So Dan, I was just checking Zoom's stock on the Yahoo Finance website, up 210% year-to-date. There are some high expectations for this earnings report.

DAN HOWLEY: Yeah, there are. And really, what we're looking for is on revenue side, we're looking at $203 million expected. That's compared to last year in the same quarter $122 million. And then earnings per share, we're looking at $.01 expected, and that's versus $0.00 in the same quarter last year.

Obviously, Zoom has gone through a huge transformation in the pandemic era. They had about 10 million daily active users in December. And then once the pandemic really kicked in, that number was ratcheted up. And it really has to do with the fact that Zoom was so easy to use for so many people. They made it basically idiot-proof.

But that also had its own issues related to security. They actually made it too easy for some people to join meetings, and that resulted in what we ended up calling Zoom-bombing, where people who were uninvited to meetings would jump in and say terrible things or post terrible images. They also found that there were issues with their own security on the back end. They weren't doing things like enabling passwords or virtual lobbies that you could screen users who were joining your meetings by default.

They also were storing video records in the cloud that could be accessible. And then they were routing some content through mainland China, which would allow the Chinese government to get access to recordings stored there. That was on top of issues, including the fact that they lied about having end-to-end encryption.

They are now in the midst of a 90-day review where they're adding security features. In the end, Zoom could become one of the most secure video chat platforms just because of all the scrutiny that was placed on it. They are adding end-to-end encryption. They have enabled those passwords and that virtual lobby. And they do now give the option of routing your content through the country of your choice. But there were a lot of issues for the company in the quarter outside of the fact that they saw that massive growth over the pandemic.

BRIAN SOZZI: Dan, isn't the-- the single most important metric out of whatever Zoom reports tonight how many paying customers they have? They've seen a lot of people into the free service, but are they trading these customers up because that will ultimately dictate the earnings power of Zoom? But look, not even-- also Slack. Slack reports earnings later this week. They have seen an explosion in free accounts. They need to be trading these people up at some point.

DAN HOWLEY: Yeah, and that's really the issue. I think for-- for Slack, you know, they offered that 40-minute video chat session for free for users. You could have up to 100 people join. And that's really what made-- I'm sorry, Zoom-- made them really attractive. It's the same issue that you see with services, like you said with Slack, with any kind of software as a service with a free offering to get people in the door and entice them. They really do have to try to move those people over to paid accounts.

And as you said with Slack, that seems to be their biggest issue. They can report as many users as they want, but if they're not getting those customers to pay up, then it doesn't really matter at the end of the day. That's really the same thing going on with Zoom. And you can expect, once the pandemic subsides at whatever point and we start to see even more people go back out and try to live their lives as best as possible, the number of users on those services will inevitably drop at some point.