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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________________________
FORM 10-Q
___________________________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM                 TO
Commission File Number 001-38865
___________________________________________________________________
Zoom Video Communications, Inc.
(Exact name of registrant as specified in its Charter)
___________________________________________________________________
Delaware 61-1648780
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer
Identification No.)
55 Almaden Boulevard, 6th Floor
San Jose, California 95113
(Address of principal executive offices and Zip Code)
(888) 799-9666
(Registrant’s telephone number, including area code)
___________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Class A Common Stock, $0.001 par value per share ZM The Nasdaq Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No ☐ 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No   ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
As of November 12, 2021, the number of shares of the registrant’s Class A common stock outstanding was 242,239,793 and the number of shares of the registrant’s Class B common stock outstanding was 55,754,775.



Zoom Video Communications, Inc.
Quarterly Report on Form 10-Q
For the Quarterly Period Ended October 31, 2021
TABLE OF CONTENTS
Page
6
6
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which statements involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations or financial condition; business strategy and plans; and objectives of management for future operations, including our statements regarding the benefits and timing of the roll out of new technology, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would” or the negative of these words or other similar terms or expressions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about: our future financial performance, including our revenue, cost of revenue, gross profit, margins, and operating expenses; trends in our key business metrics; the sufficiency of our cash and cash equivalents, investments, and cash provided by sales of our products and services to meet our liquidity needs; market trends; our market position and opportunity; our growth strategy and business aspirations for our communications platform; our plans, objectives, expectations and intentions with respect to the combined company; the anticipated timing of closing of the proposed acquisition; our product strategy; our efforts to enhance the security and privacy of our platform; the potential impacts of the COVID-19 pandemic and related public health measures on our business, the business of our customers, suppliers and channel partners, and the economy; our ability to become the ubiquitous platform for communications; our ability to attract new customers and retain existing customers; our ability to successfully expand into our existing markets and into new markets; our ability to effectively manage our growth and future expenses; and the impact of recent accounting pronouncements on our unaudited condensed consolidated financial statements.
You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe that such information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments.
You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed with the Securities and Exchange Commission as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance, and events and circumstances may be materially different from what we expect.


3


SUMMARY RISK FACTORS
Investing in our Class A common stock involves numerous risks, including the risks described in “Part II—Other Information, Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q. Below are some of these risks, any one of which could materially adversely affect our business, financial condition, results of operations, and prospects.
Our business depends on our ability to attract new customers and hosts, retain and upsell additional products to existing customers, and upgrade free hosts to our paid offerings. Any decline in new customers and hosts, renewals, or upgrades would harm our business.
Beginning in the fiscal quarter ended April 30, 2020, we faced unprecedented usage of our communications platform largely due to the COVID-19 pandemic. We expect our user growth rate to slow or decline once the impact of the COVID-19 pandemic tapers, particularly as vaccines become widely available and distributed, and users return to work or school or are otherwise no longer subject to limitations on in-person meetings.
Interruptions, delays, or outages in service from our co-located data centers and a variety of other factors, including increased usage stemming from the COVID-19 pandemic, would impair the delivery of our services, require us to issue credits or pay penalties, and harm our business.
We operate in competitive markets, and we must continue to compete effectively.
We may not be able to sustain our revenue growth rate in the future, and we expect our revenue growth rate to generally decline in future periods.
Failures in internet infrastructure or interference with broadband access could cause current or potential users to believe that our systems are unreliable, possibly leading our customers and hosts to switch to our competitors, or to cancel their subscriptions to our platform.
As we increase sales to large organizations, our sales cycles could lengthen, and we could experience greater deployment challenges.
We generate revenue from sales of subscriptions to our platform, and any decline in demand for our platform or for communications and collaboration technologies in general would harm our business.
We have experienced net losses in the past, and we expect to increase our expenses in the future, which could prevent us from maintaining profitability.
We may not be able to respond to rapid technological changes, extend our platform or develop new features.
Our security measures have been compromised in the past and may be compromised in the future. If our security measures are compromised in the future or if our information technology fails, this could harm our reputation, expose us to significant fines and liability, impair our sales, and harm our business. In addition, our products and services may be perceived as not being secure. This perception may result in customers and hosts curtailing or ceasing their use of our products, our incurring significant liabilities, and our business being harmed.
We have a limited operating history at the current scale of our business, which makes it difficult to evaluate our prospects and future results of operations.
The actual or perceived failure by us, our customers, partners, or vendors to comply with stringent and evolving privacy, data protection, and information security laws, regulations, standards, policies, and contractual obligations could harm our reputation and business or subject us to significant fines and liability.
If we were to lose the services of our Chief Executive Officer or other members of our senior management team, we may not be able to execute our business strategy.
We have significant and expanding operations outside the United States, which may subject us to increased business, regulatory and economic risks that could harm our business.
We may be subject to, or assist law enforcement with enforcement of, a variety of U.S. and international laws that could result in claims, increase the cost of operations, or otherwise harm our business due to changes in the laws, changes in the interpretations of the laws, greater enforcement of the laws, or investigations into compliance with the laws.
Zoom Phone is subject to U.S. federal and international regulation, and other products we may introduce in the future may also be subject to U.S. federal, state, or international laws, rules, and regulations. Any failure to comply with such laws, rules, and regulations could harm our business and expose us to liability.


4

The dual class structure of our common stock as contained in our amended and restated certificate of incorporation has the effect of concentrating voting control with those stockholders who held our stock prior to our initial public offering, including our executive officers, employees, and directors and their affiliates, limiting your ability to influence corporate matters.
If we are unable to adequately address these and other risks we face, our business may be harmed.


5

PART I—Financial Information
Item 1.    FINANCIAL STATEMENTS
ZOOM VIDEO COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
As of
October 31,
2021
January 31,
2021
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 1,322,435  $ 2,240,303 
Marketable securities 4,095,520  2,004,410 
Accounts receivable, net of allowances of $34,078 and $36,844 as of October 31, 2021 and January 31, 2021, respectively
377,874  294,703 
Deferred contract acquisition costs, current 177,966  136,630 
Prepaid expenses and other current assets 138,921  116,819 
Total current assets 6,112,716  4,792,865 
Deferred contract acquisition costs, noncurrent 155,541  157,262 
Property and equipment, net 212,655  149,924 
Operating lease right-of-use assets 88,335  97,649 
Strategic investments 299,750  18,668 
Goodwill 26,247  24,340 
Other assets, noncurrent 83,727  57,285 
Total assets $ 6,978,971  $ 5,297,993 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 20,064  $ 8,664 
Accrued expenses and other current liabilities 509,874  393,018 
Deferred revenue, current 1,161,442  858,284 
Total current liabilities 1,691,380  1,259,966 
Deferred revenue, noncurrent 24,677  25,211 
Operating lease liabilities, noncurrent 79,319  90,415 
Other liabilities, noncurrent 69,910  61,634 
Total liabilities 1,865,286  1,437,226 
Commitments and contingencies (Note 7)
Stockholders’ equity:
Preferred stock, $0.001 par value per share, 200,000,000 shares authorized as of October 31, 2021 and January 31, 2021; zero shares issued and outstanding as of October 31, 2021 and January 31, 2021
—  — 
Common stock, $0.001 par value per share, 2,000,000,000 Class A shares authorized as of October 31, 2021 and January 31, 2021; 242,019,615 and 215,737,924 shares issued and outstanding as of October 31, 2021 and January 31, 2021, respectively; 300,000,000 Class B shares authorized as of October 31, 2021 and January 31, 2021; 55,917,342 and 77,811,299 shares issued and outstanding as of October 31, 2021 and January 31, 2021, respectively
297  292 
Additional paid-in capital 3,561,050  3,187,168 
Accumulated other comprehensive (loss) income (5,128) 839 
Retained earnings 1,557,466  672,468 
Total stockholders’ equity 5,113,685  3,860,767 
Total liabilities and stockholders’ equity $ 6,978,971  $ 5,297,993 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


6

ZOOM VIDEO COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
Three Months Ended October 31, Nine Months Ended October 31,
2021 2020 2021 2020
Revenue $ 1,050,756  $ 777,196  $ 3,028,488  $ 1,768,883 
Cost of revenue 270,957  258,727  797,207  554,705 
Gross profit 779,799  518,469  2,231,281  1,214,178 
Operating expenses:
Research and development 98,508  42,582  245,994  111,705 
Sales and marketing 293,698  190,157  810,544  470,886 
General and administrative 96,736  93,488  362,971  227,856 
Total operating expenses 488,942  326,227  1,419,509  810,447 
Income from operations 290,857  192,242  811,772  403,731 
Gains on strategic investments, net 122,421  —  154,497  2,538 
Interest income and other, net (2,995) 1,779  (3,171) 7,112 
Income before provision for (benefit from) income taxes 410,283  194,021  963,098  413,381 
Provision for (benefit from) income taxes 69,900  (4,621) 78,100  1,675 
Net income 340,383  198,642  884,998  411,706 
Undistributed earnings attributable to participating securities (112) (202) (430) (531)
Net income attributable to common stockholders $ 340,271  $ 198,440  $ 884,568  $ 411,175 
Net income per share attributable to common stockholders:    
Basic $ 1.14  $ 0.70  $ 2.99  $ 1.46 
Diluted $ 1.11  $ 0.66  $ 2.89  $ 1.38 
Weighted-average shares used in computing net income per share attributable to common stockholders:
Basic 297,375,011  284,783,006  295,647,626  282,564,481 
Diluted 305,939,624  299,258,765  305,726,733  297,605,941 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


7

ZOOM VIDEO COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
  Three Months Ended October 31, Nine Months Ended October 31,
  2021 2020 2021 2020
Net income $ 340,383  $ 198,642  $ 884,998  $ 411,706 
Other comprehensive (loss) income:
Unrealized (loss) gain on available-for-sale marketable securities, net of tax (5,275) (1,455) (5,967) 508 
Comprehensive income $ 335,108  $ 197,187  $ 879,031  $ 412,214 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


8

ZOOM VIDEO COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
(unaudited)
Three Months Ended October 31, 2021
Common Stock Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained Earnings Total
Stockholders’
Equity
Shares Amount
Balance as of July 31, 2021 297,027,323  $ 296  $ 3,440,222  $ 147  $ 1,217,083  $ 4,657,748 
Issuance of common stock upon exercise of stock options 612,056  3,124  —  —  3,125 
Issuance of common stock upon release of restricted stock units 297,578  —  —  —  —  — 
Stock-based compensation expense —  —  117,704  —  —  117,704 
Other comprehensive loss —  —  —  (5,275) —  (5,275)
Net income —  —  —  —  340,383  340,383 
Balance as of October 31, 2021 297,936,957  $ 297  $ 3,561,050  $ (5,128) $ 1,557,466  $ 5,113,685 
Three Months Ended October 31, 2020
Common Stock Additional
Paid-In
Capital
Accumulated Other Comprehensive Income Retained Earnings Total
Stockholders’
Equity
Shares Amount
Balance as of July 31, 2020 284,342,719  $ 283  $ 982,541  $ 2,772  $ 213,216  $ 1,198,812 
Issuance of common stock upon exercise of stock options 1,333,924  6,609  —  —  6,610 
Issuance of common stock upon release of restricted stock units 268,936  —  —  —  —  — 
Stock-based compensation expense —  —  97,309  —  —  97,309 
Other comprehensive loss —  —  —  (1,455) —  (1,455)
Net income —  —  —  —  198,642  198,642 
Balance as of October 31, 2020 285,945,579  $ 284  $ 1,086,459  $ 1,317  $ 411,858  $ 1,499,918 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


9

ZOOM VIDEO COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
(unaudited)
Nine Months Ended October 31, 2021
Common Stock Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained Earnings Total
Stockholders’ Equity
Shares Amount
Balance as of January 31, 2021 293,549,223  $ 292  $ 3,187,168  $ 839  $ 672,468  $ 3,860,767 
Issuance of common stock upon exercise of stock options 2,205,249  11,359  —  —  11,362 
Issuance of common stock upon release of restricted stock units 1,480,536  —  —  — 
Issuance of common stock for employee stock purchase plan 701,949  37,845  —  —  37,846 
Stock-based compensation expense —  —  324,678  —  —  324,678 
Other comprehensive loss —  —  —  (5,967) —  (5,967)
Net income —  —  —  —  884,998  884,998 
Balance as of October 31, 2021 297,936,957  $ 297  $ 3,561,050  $ (5,128) $ 1,557,466  $ 5,113,685 
Nine Months Ended October 31, 2020
Common Stock Additional
Paid-In
Capital
Accumulated Other Comprehensive Income Retained Earnings Total
Stockholders’
Equity
Shares Amount
Balance as of January 31, 2020 278,731,143  $ 277  $ 832,705  $ 809  $ 152  $ 833,943 
Issuance of common stock upon exercise of stock options 6,164,676  24,285  —  —  24,291 
Issuance of common stock upon release of restricted stock units 443,836  —  —  —  —  — 
Charitable donation of common stock —  —  23,312  —  —  23,312 
Issuance of common stock for employee stock purchase plan 605,924  20,759  —  —  20,760 
Stock-based compensation expense —  —  185,398  —  —  185,398 
Other comprehensive income —  —  —  508  —  508 
Net income —  —  —  —  411,706  411,706 
Balance as of October 31, 2020 285,945,579  $ 284  $ 1,086,459  $ 1,317  $ 411,858  $ 1,499,918 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


10

ZOOM VIDEO COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended October 31,
2021 2020
Cash flows from operating activities:
Net income $ 884,998  $ 411,706 
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense 315,912  179,557 
Amortization of deferred contract acquisition costs 125,691  71,281 
Gains on strategic investments, net (154,497) (2,538)
Depreciation and amortization 35,275  19,401 
Provision for accounts receivable allowances 23,482  20,218 
Non-cash operating lease cost 13,131  7,182 
Charitable donation of common stock —  23,312 
Amortization on marketable securities 19,546  2,787 
Other 2,127  930 
Changes in operating assets and liabilities:
Accounts receivable (108,541) (190,117)
Prepaid expenses and other assets (71,998) (48,258)
Deferred contract acquisition costs (165,305) (266,294)
Accounts payable 12,062  8,773 
Accrued expenses and other liabilities 171,914  203,919 
Deferred revenue 304,513  633,600 
Operating lease liabilities, net (12,440) (3,678)
Net cash provided by operating activities 1,395,870  1,071,781 
Cash flows from investing activities:
Purchases of marketable securities (3,446,313) (1,016,109)
Maturities of marketable securities 1,047,545  406,607 
Sales of marketable securities 281,582  36,897 
Purchases of property and equipment (111,816) (58,517)
Purchases of strategic investments (126,349) (13,000)
Cash paid for acquisition, net of cash acquired (2,121) (26,486)
Purchase of intangible assets (9,626) (4,385)
Other —  1,616 
Net cash used in investing activities (2,367,098) (673,377)
Cash flows from financing activities:
Proceeds from issuance of common stock for employee stock purchase plan 37,846  20,760 
Proceeds from employee equity transactions (remitted) to be remitted to employees and tax authorities, net (28,342) 251,641 
Proceeds from exercise of stock options 11,044  23,841 
Other 337  — 
Net cash provided by financing activities 20,885  296,242 
Net (decrease) increase in cash, cash equivalents, and restricted cash (950,343) 694,646 
Cash, cash equivalents, and restricted cash – beginning of period 2,293,116  334,082 
Cash, cash equivalents, and restricted cash – end of period $ 1,342,773  $ 1,028,728 
Reconciliation of cash, cash equivalents, and restricted cash within the condensed consolidated balance sheets to the amounts shown in the condensed consolidated statements of cash flows above:
Cash and cash equivalents $ 1,322,435  $ 730,506 
Restricted cash, current included in prepaid expenses and other current assets 20,041  296,007 
Restricted cash, noncurrent included in other assets, noncurrent 297  2,215 
Total cash, cash equivalents, and restricted cash $ 1,342,773  $ 1,028,728 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


11

ZOOM VIDEO COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1.Summary of Business and Significant Accounting Policies
Description of Business
Zoom Video Communications, Inc. and its subsidiaries (collectively, “Zoom,” the “Company,” “we,” “us,” or “our”) provide a communications platform that delivers happiness and fundamentally changes how people interact. We connect people through frictionless and secure video, phone, chat, and content sharing and enable face-to-face video experiences for thousands of people in a single meeting across disparate devices and locations. We were incorporated in the state of Delaware in April 2011, and are headquartered in San Jose, California.
Fiscal Year
Our fiscal year ends on January 31. References to fiscal year 2022, for example, refer to the fiscal year ending January 31, 2022.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and applicable regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting, and include the accounts of Zoom Video Communications, Inc., its subsidiaries, and variable interest entities for which we are the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation.
The condensed consolidated balance sheet as of January 31, 2021 included herein was derived from the audited financial statements as of that date, but does not include all disclosures, including certain notes required by GAAP on an annual reporting basis. The unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the balance sheets, statements of operations, statements of comprehensive income, statements of stockholders’ equity, and statements of cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full fiscal year or any future period. 
The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended January 31, 2021, filed with the SEC on March 18, 2021.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant items subject to such estimates and assumptions include, but are not limited to, the estimated expected benefit period for deferred contract acquisition costs, the useful lives of long-lived assets, the incremental borrowing rate for operating leases, stock-based compensation expense, sales and other tax liabilities, the fair value of marketable securities, acquired intangible assets and goodwill, the valuation of deferred income tax assets and uncertain tax positions, and accruals and contingencies. Actual results could differ from those estimates.
The COVID-19 pandemic has created, and may continue to create, significant uncertainty in macroeconomic conditions, and the extent of its impact on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, the availability and distribution of vaccines, and their impact on our customers and our sales cycles. During the three and nine months ended October 31, 2021 and 2020, our estimates and assumptions required increased judgment and carried a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, our estimates may change materially in future periods.
Summary of Significant Accounting Policies
Our significant accounting policies are discussed in Note 1. “Summary of Business and Significant Accounting Policies” in the notes to consolidated financial statements included in our Annual Report on Form 10-K for the year ended January 31, 2021, filed with the SEC on March 18, 2021. There have been no significant changes to these policies during the nine months ended October 31, 2021, except as noted below.


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Strategic Investments
We hold strategic investments in publicly held equity securities and privately held debt and equity securities in which we do not have a controlling interest. Publicly held equity securities are measured using quoted prices in their respective active markets with changes recorded through gains on strategic investments, net in the condensed consolidated statements of operations. Privately held equity securities without a readily determinable fair value are recorded at cost and adjusted for impairments and observable price changes with a same or similar security from the same issuer (i.e. using the measurement alternative) and are recorded through gains on strategic investments, net in the condensed consolidated statements of operations.
If, based on the terms of these publicly traded and privately held securities, we determine that we exercise significant influence on the entity to which these securities relate, we will apply the equity method of accounting for such investments. Privately held equity securities that are accounted for under the equity method are measured at cost less any impairment, plus or minus our share of equity method investee income or loss, which is reported in gains on strategic investments, net in the condensed consolidated statements of operations.
Privately held debt securities are recorded at fair value with changes in fair value recorded through accumulated other comprehensive income on the condensed consolidated balance sheets.
On a quarterly basis, we assess our privately held debt and equity securities in our strategic investment portfolio for impairment. As of October 31, 2021, we have not recognized any impairments to our privately held debt and equity securities.
2.    Revenue Recognition
Disaggregation of Revenue
The following table summarizes revenue by region based on the billing address of customers:
Three Months Ended October 31, Nine Months Ended October 31,
2021 2020 2021 2020
Amount Percentage of
Revenue
Amount Percentage of
Revenue
Amount Percentage of
Revenue
Amount Percentage of
Revenue
(in thousands, except percentages)
Americas $ 699,944  67  % $ 538,504  69  % $ 2,017,143  67  % $ 1,238,298  70  %
Asia Pacific (“APAC”)
150,473  14  103,458  13  409,557  13  215,099  12 
Europe, Middle East, and Africa (“EMEA”)
200,339  19  135,234  18  601,788  20  315,486  18 
Total $ 1,050,756  100  % $ 777,196  100  % $ 3,028,488  100  % $ 1,768,883  100  %
Contract Balances
We receive payments from customers based on a billing schedule as established in our customer contracts. Accounts receivable are recorded when we contractually have the right to consideration. In some arrangements, a right to consideration for our performance under the customer contract may occur before invoicing to the customer, resulting in an unbilled accounts receivable. The amount of unbilled accounts receivable included within accounts receivable, net of allowances on the condensed consolidated balance sheets was $48.6 million and $24.6 million as of October 31, 2021 and January 31, 2021, respectively.
Contract liabilities consist of deferred revenue. Revenue is deferred when we have the right to invoice in advance of performance under a customer contract. The current portion of deferred revenue balances is recognized over the next 12 months. The amount of revenue recognized during the three months ended October 31, 2021 and 2020 that was included in deferred revenue at the beginning of each period was $510.8 million and $312.0 million, respectively, and $802.0 million and $203.3 million during the nine months ended October 31, 2021 and 2020, respectively.
Remaining Performance Obligations
The terms of our subscription agreements are monthly, annual, and multiyear, and we may bill for the full term in advance or on an annual, quarterly, or monthly basis, depending on the billing terms with customers. As of October 31, 2021, the aggregate amount of the transaction price allocated to our remaining performance obligations was $2,456.5 million, which consisted of both billed consideration in the amount of $1,186.1 million and unbilled consideration in the amount of


13

$1,270.4 million that we expect to recognize as revenue. We expect to recognize 67% of our remaining performance obligations as revenue over the next 12 months and the remainder thereafter.
3.    Investments
Marketable Securities
As of October 31, 2021 and January 31, 2021, our marketable securities consisted of the following: 
As of October 31, 2021
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
(in thousands)
Commercial paper $ 23,482  $ —  $ —  $ 23,482 
Agency bonds 437,782  13  (342) 437,453 
Corporate and other debt securities 314,888  56  (423) 314,521 
U.S. government agency securities 3,000,441  17  (4,413) 2,996,045 
Treasury bills 324,046  —  (27) 324,019 
Marketable securities $ 4,100,639  $ 86  $ (5,205) $ 4,095,520 
As of January 31, 2021
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
(in thousands)
Commercial paper $ 26,222  $ —  $ —  $ 26,222 
Agency bonds 461,335  79  (49) 461,365 
Corporate and other debt securities 465,207  1,113  (64) 466,256 
U.S. government agency securities 834,894  28  (257) 834,665 
Treasury bills 215,902  (6) 215,902 
Marketable securities $ 2,003,560  $ 1,226  $ (376) $ 2,004,410 
We review the individual securities that have unrealized losses on a regular basis to evaluate whether or not any security has experienced, or is expected to experience, credit losses resulting in the decline in fair value. We evaluate, among other factors, whether we have the intention to sell any of these marketable securities and whether it is more likely than not that we will be required to sell any of them before recovery of the amortized cost basis. We have not recorded an allowance for credit losses, as we believe any such losses would be immaterial based on the high-grade credit rating for each of our marketable securities as of the end of each period. There were no material realized gains or losses from available-for-sale securities that were reclassified out of accumulated other comprehensive income (loss) for the three and nine months ended October 31, 2021 and 2020.
The following table presents the contractual maturities of our marketable securities as of October 31, 2021 and January 31, 2021:
As of
October 31, 2021 January 31, 2021
(in thousands)
Less than one year $ 2,143,667  $ 1,017,048 
Due in one to five years 1,951,853  987,362 
Total $ 4,095,520  $ 2,004,410 


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Strategic Investments
Strategic investments by form and measurement category as of October 31, 2021 were as follows:
Measurement Category
Fair Value Measurement Alternative Equity Method Total
(in thousands)
Equity securities $ 179,918  $ 13,349  $ 93,117  $ 286,384 
Debt securities 13,366  —  —  13,366 
Strategic investments $ 193,284  $ 13,349  $ 93,117  $ 299,750 
Strategic investments by form and measurement category as of January 31, 2021 were as follows:
Measurement Category
Fair Value Measurement Alternative Equity Method Total
(in thousands)
Equity securities $ —  $ 13,538  $ —  $ 13,538 
Debt securities 5,130  —  —  5,130 
Strategic investments $ 5,130  $ 13,538  $ —  $ 18,668 
In the second quarter of fiscal year 2022, we made a $75.0 million strategic investment of common shares of a technology company in a private placement concurrent with the investee company’s initial public offering. The shares are subject to a 180-day lock-up agreement. We recorded a gain of $72.8 million and $104.9 million related to this investment in the three and nine months ended October 31, 2021, respectively. As of October 31, 2021, the fair value of the investment was $179.9 million and our ownership interest represents approximately one percent of the economic interest of the investee’s outstanding capital stock.
In the third quarter of fiscal year 2022, we made an additional strategic investment in equity securities of a private company. Based on the terms of these privately-held securities, we determined that we currently do not have a controlling interest but have the ability to exercise significant influence over the operating and financial policies of the investee. Therefore this investment is currently accounted for under the equity method. The fair value of the investment was remeasured immediately before adopting the equity method of accounting, based on the observable price from the most recent financing round. The carrying value of this investment was also adjusted by our share of the equity method investee’s operating result for the respective period, which was immaterial for the three months ended October 31, 2021. As a result, we recognized a total gain of $49.6 million on the existing investment during the three months ended October 31, 2021. As of October 31, 2021, the carrying amount of this investment was $93.1 million.


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4.    Fair Value Measurements
The following tables present information about our financial instruments that are measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value:
As of October 31, 2021
Fair Value Level 1 Level 2 Level 3
(in thousands)
Financial Assets:
Money market funds $ 295,943  $ 295,943  $ —  $ — 
Treasury bills 576,668  —  576,668  — 
Cash equivalents 872,611  295,943  576,668  — 
Commercial paper 23,482  —  23,482  — 
Agency bonds 437,453  —  437,453  — 
Corporate and other debt securities 314,521  —  314,521  — 
U.S. government agency securities 2,996,045  —  2,996,045  — 
Treasury bills 324,019  —  324,019  — 
Marketable securities 4,095,520  —  4,095,520  — 
Publicly held equity securities included in strategic investments 179,918  179,918  —  — 
Privately held debt securities included in strategic investments 13,366  —  —  13,366 
Certificates of deposit included in other assets, noncurrent 297  —  297  — 
Total financial assets $ 5,161,712  $ 475,861  $ 4,672,485  $ 13,366 
As of January 31, 2021
Fair Value Level 1 Level 2 Level 3
(in thousands)
Financial Assets:
Money market funds $ 958,357  $ 958,357  $ —  $ — 
Treasury bills 618,498  —  618,498  — 
Cash equivalents 1,576,855  958,357  618,498  — 
Commercial paper 26,222  —  26,222  — 
Agency bonds 461,365  —  461,365  — 
Corporate and other debt securities 466,256  —  466,256  — 
U.S. government agency securities 834,665  —  834,665  — 
Treasury bills 215,902  —  215,902  — 
Marketable securities 2,004,410  —  2,004,410  — 
Certificate of deposit included in prepaid expenses and other current assets 100  —  100  — 
Certificates of deposit included in other assets, noncurrent 2,238  —  2,238  — 
Privately held debt securities included in strategic investments 5,130  —  —  5,130 
Total financial assets $ 3,588,733  $ 958,357  $ 2,625,246  $ 5,130 
We classify our highly liquid money market funds and publicly held equity securities within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets. We classify our commercial paper, agency bonds, corporate and other debt securities, U.S. government agency securities, treasury bills, and certificates of deposit within Level 2 because they are valued using inputs other than quoted prices that are directly or indirectly observable in the market, including readily available pricing sources for the identical underlying security, which may not be actively traded. We classify our privately held debt securities as Level 3 due to the lack of relevant observable market data over fair value inputs, such as the probability weighting of the various scenarios that can impact settlement of the arrangement.


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5.    Business Combinations
Keybase, Inc.
On May 7, 2020, we acquired 100% of the issued and outstanding share capital of Keybase, Inc. (“Keybase”), a secure messaging and file-sharing company, for purchase consideration of $42.9 million in cash. The acquisition helps us strengthen the security of our video communications platform by providing end-to-end encryption (“E2EE”) expertise. The acquisition has been accounted for as a business combination.
In allocating the purchase consideration, $24.3 million was attributed to goodwill, $3.3 million to intangible assets, and $15.3 million to other net assets acquired primarily consisting of cash and cash equivalents of $16.4 million. The goodwill amount represents synergies related to our existing products expected to be realized from the acquisition and assembled workforce. The associated goodwill is not deductible for tax purposes. Acquired intangible assets consisted of developed technology with an estimated useful life of five years. The developed technology had a remaining useful life of 3.5 years as of October 31, 2021, and is amortized using the straight-line method over its estimated useful life.
Not included in the purchase consideration, we also entered into holdback agreements with certain employees for $20.0 million in cash payments, which are subject to such employees’ continued service with us. The holdback amount of $20.0 million will be treated as compensation for research and development over the required service period ranging from one year to three years.
Transaction costs incurred in connection with the acquisition were immaterial. The results of operations of Keybase have been included in our condensed consolidated financial statements from the date of the acquisition. Pro forma and historical results of operations of Keybase have not been presented, as the results do not have a material effect on any of the periods presented in our condensed consolidated statements of operations.
6.    Balance Sheet Components
Accounts Receivable, Net
Accounts receivable are recorded for invoiced amounts and amounts for which revenue has been recognized, but not invoiced, net of allowances. Our short-term accounts receivable consist of the following:
As of
October 31, 2021 January 31, 2021
(in thousands)
Accounts receivable, gross $ 411,952  $ 331,547 
Less: allowance for credit losses (21,100) (20,500)
Less: allowance for returns (12,978) (16,344)
Accounts receivable, net $ 377,874  $ 294,703 
Below is a rollforward of our allowance for credit losses for the nine months ended October 31, 2021 and 2020:
2021 2020
 (in thousands)
Balance as of January 31 $ 20,500  $ 5,150 
Provision for credit losses 19,416  17,070 
Write-offs (18,816) (5,720)
Balance as of October 31 $ 21,100  $ 16,500 


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Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
As of
October 31, 2021 January 31, 2021
(in thousands)
Prepaid expenses $ 96,059  $ 60,702 
Restricted cash from international employee stock sales 20,041  50,475 
Other 22,821  5,642 
Prepaid expenses and other current assets $ 138,921  $ 116,819 
Property and Equipment, Net
Property and equipment consisted of the following:
As of
October 31, 2021 January 31, 2021
(in thousands)
Computer and office equipment $ 208,745  $ 137,445 
Software 54,146  36,216 
Leasehold improvements 24,586  23,593 
Furniture and fixtures 4,539  4,625 
Property and equipment, gross 292,016  201,879 
Less: accumulated depreciation and amortization (79,361) (51,955)
Property and equipment, net $ 212,655  $ 149,924 
Depreciation and amortization expense was $12.4 million and $7.4 million for the three months ended October 31, 2021 and 2020, respectively, and $34.7 million and $19.1 million for the nine months ended October 31, 2021 and 2020, respectively.
Other Assets, Noncurrent
Other assets, noncurrent consisted of the following:
As of
October 31, 2021 January 31, 2021
(in thousands)
Accounts receivable, noncurrent $ 36,915  $ 28,008 
Prepaid expenses, noncurrent 18,167  12,386 
Other 28,645  16,891 
Other assets, noncurrent $ 83,727  $ 57,285 


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Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
As of
October 31, 2021 January 31, 2021
(in thousands)
Accrued expenses $ 225,237  $ 157,167 
Accrued compensation and benefits 141,584  118,640 
Income tax payable 49,090  3,426 
Proceeds from employee equity transactions to be remitted to employees and tax authorities 25,832  54,174 
Sales and other tax liabilities 27,450  27,453 
Operating lease liabilities, current 18,074  15,601 
Other 22,607  16,557 
Accrued expenses and other current liabilities $ 509,874  $ 393,018 
Other Liabilities, Noncurrent
Other liabilities, noncurrent consisted of the following:
As of
October 31, 2021 January 31, 2021
(in thousands)
Sales and other tax liabilities $ 55,563  $ 58,133 
Other 14,347  3,501 
Other liabilities, noncurrent $ 69,910  $ 61,634 

7.    Commitments and Contingencies
Non-cancelable Purchase Obligations
During the nine months ended October 31, 2021, there have been no material changes to our non-cancelable purchase obligations from those disclosed in Note 8. “Commitments and Contingencies” in the notes to consolidated financial statements included in our Annual Report on Form 10-K for the year ended January 31, 2021, filed with the SEC on March 18, 2021.
Other Contingencies
In June 2020, we received a grand jury subpoena from the Department of Justice’s U.S. Attorney’s Office for the Eastern District of New York (“EDNY”), which requested information regarding our interactions with foreign governments and foreign political parties, including the Chinese government, as well as information regarding storage of and access to user data, the development and implementation of Zoom’s privacy policies, and the actions we took relating to the Tiananmen commemorations on Zoom. In July 2020, we received subpoenas from the Department of Justice’s U.S. Attorney’s Office for the Northern District of California (“NDCA”) and the SEC. Both subpoenas seek documents and information relating to various security, data protection and privacy matters, including our encryption, and our statements relating thereto, as well as calculation of usage metrics and related public statements. In addition, the NDCA subpoena seeks information relating to any contacts between our employees and representatives of the Chinese government, and any attempted or successful influence by any foreign government in our policies, procedures, practices, and actions as they relate to users in the United States. We have since received additional subpoenas from EDNY and NDCA seeking related information. We are fully cooperating with these investigations and have been conducting our own thorough internal investigation. These investigations are ongoing, and we do not know when they will be completed, which facts we will ultimately discover as a result of the investigations, or what actions the government may or may not take. We cannot predict the outcome of these investigations, and a negative outcome in any or all of these matters could cause us to incur material fines, penalties, or other financial exposure.


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Legal Proceedings
On April 7, 2020 and April 8, 2020, securities class action complaints were filed against us and two of our officers in the United States District Court for the NDCA. The plaintiffs are purported stockholders of the Company. The complaints allege, among other things, that we violated Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5 by making false and misleading statements and omissions of material fact about our data privacy and security measures. The complaints seek unspecified damages, interest, fees, and costs. On May 18, 2020, the actions were consolidated. On November 4, 2020, the court appointed a lead plaintiff. On December 23, 2020, the lead plaintiff filed a consolidated complaint. We filed a motion to dismiss the consolidated complaint on May 20, 2021. Plaintiff filed an opposition to our motion to dismiss on July 9, 2021. Our reply in support of the motion to dismiss was filed on August 9, 2021. On August 23, 2021, the judge took the motion under submission without oral argument.
On June 11, 2020 and July 30, 2020, purported shareholder derivative complaints were filed in the United States District Court for the District of Delaware. The first complaint names as defendants nine of our officers and directors, and the second complaint names eight of our officers and directors. The lawsuits assert state and federal claims and are based on the same alleged misstatements as the shareholder class action complaint. The lawsuits accuse our board of directors of failing to exercise reasonable and prudent supervision over our management, policies, practices, and internal controls. The plaintiffs seek unspecified monetary damages on behalf of us as well as governance reforms. On September 25, 2020, the derivative cases were consolidated. The consolidated case is stayed pending resolution of a forthcoming motion to dismiss the securities class action. On October 27, 2021, a third substantially identical lawsuit was filed in the same court against the same defendants, seeking unspecified monetary damages and governance reforms. The parties in all three derivative lawsuits have agreed to consolidate the cases and stay the consolidated lawsuit pending resolution of a forthcoming motion to dismiss the securities class action.
We believe these lawsuits are without merit, and we are vigorously defending ourselves against them. Given the uncertainty of litigation, the preliminary stage of the cases, and the legal standards that must be met for, among other things, class certification and success on the merits, we cannot estimate the reasonably possible loss or range of loss that may result from these actions.
Beginning on March 30, 2020, multiple putative class actions have been filed against us in various U.S. federal district courts and state courts relating to our alleged privacy and security practices, including alleged data sharing with third parties (the “U.S. Privacy Class Actions”). The plaintiffs claim violations of a variety of state consumer protection and privacy laws, and also assert state constitutional and common law claims, such as negligence and unjust enrichment. The U.S. Privacy Class Actions seek to certify both nationwide and state-specific classes of individuals using our services in certain time periods. The plaintiffs seek various forms of injunctive and monetary relief, including restitution, statutory and actual damages, punitive damages, and attorneys’ fees. The federal cases have been transferred to and consolidated in the NDCA with our consent; lead plaintiffs’ counsel have been appointed; and plaintiffs filed their first amended consolidated class action complaint on October 28, 2020. On March 11, 2021, the court granted in part, and denied in part, our motion to dismiss, and gave plaintiffs leave to amend. On July 30, 2021, we entered into a settlement agreement with plaintiffs to settle the action on a classwide basis, and plaintiffs filed a motion for preliminary approval of the settlement with the court on July 31, 2021. On October 21, 2021, the court preliminarily approved the settlement. Under the terms of the settlement, we have paid $85.0 million into an escrow account that will be used to pay claims filed by settlement class members, attorneys’ fees and expenses, administrative costs, and service payments to plaintiffs. The Court has scheduled a final approval hearing to take place on April 7, 2022. We recorded an aggregate legal settlement charge of $66.9 million net of amounts estimated to be covered by insurance as a general and administrative expense in our condensed consolidated statement of operations for the nine months ended October 31, 2021.
In September 2019, the Federal Trade Commission (“FTC”) issued a Civil Investigative Demand to us requiring us to produce certain documents and materials and to answer certain interrogatories relating to our privacy and security representations and practices. Since then, we have fully cooperated with the investigation. In October 2020, we reached a proposed settlement agreement with the FTC staff to resolve the FTC’s allegations that certain of our statements and practices about our security constituted deceptive and unfair acts or practices in violation of the FTC Act. On November 10, 2020, the FTC Commissioners voted to approve the settlement and, on November 13, 2020, the FTC published the settlement in the Federal Register for a 30-day public comment period, which ended on December 13, 2020. On January 19, 2021, the FTC voted to finalize the settlement. Under the terms of the settlement, we neither admit nor deny the FTC’s allegations, and the FTC does not impose any fine or penalty upon us. We are required to implement certain injunctive provisions, including, among other things, refraining from making any misrepresentations regarding the privacy and security of our services or how we collect, maintain, use, delete, disclose, allow access to, and protect user information. It also requires us to implement a detailed information security program and obtain third-party security assessments periodically.
We do not expect the settlement to have a material impact on our financial results. We will cooperate with the FTC’s requirements and work to ensure compliance. Any failure to comply with the settlement may increase the possibility of additional adverse consequences, including litigation, additional regulatory actions, injunctions, or monetary penalties, or


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require further changes to our business practices, significant management time, or the diversion of significant operational resources, all of which could result in a material loss or otherwise harm our business.
In addition, from time to time, we are involved in various other legal proceedings arising from the normal course of business activities. We are not presently a party to any other such litigation the outcome of which, we believe, if determined adversely to us, would individually, or taken together, have a material adverse effect on our business, operating results, cash flows, or financial condition. Defending such proceedings is costly and can impose a significant burden on management and employees. We may receive unfavorable preliminary or interim rulings in the course of litigation, and there can be no assurances that favorable final outcomes will be obtained.
8.    Stockholders’ Equity and Equity Incentive Plans
Common Stock
In connection with our initial public offering (“IPO”) in April 2019, our amended and restated certificate of incorporation became effective, which authorized the issuance of 2,000,000,000 shares of Class A common stock, $0.001 par value per share, and 300,000,000 shares of Class B common stock, $0.001 par value per share. Class A and Class B common stock are referred to as common stock throughout the notes to the condensed consolidated financial statements, unless otherwise noted.
Equity Incentive Plans
We have two equity incentive plans: the 2011 Global Share Plan (“2011 Plan”) and the 2019 Equity Incentive Plan (“2019 Plan”). All shares that remain available for future grants are under the 2019 Plan.
Stock Options
A summary of stock option activity under our equity incentive plan and related information is as follows:
  Stock Options
Outstanding
Stock
Options
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Life (Years)
Aggregate
Intrinsic
Value
(in thousands, except share, life, and per share data)
Balance as of January 31, 2021 9,239,504  $ 7.17  7.0 $ 3,371,457 
Granted —  $ — 
Exercised (2,205,249) $ 5.01 
Canceled/forfeited/expired (128,780) $ 9.32 
Balance as of October 31, 2021 6,905,475  $ 7.83  6.3 $ 1,842,547 
Vested and exercisable as of October 31, 2021 4,978,217  $ 5.16  6.0 $ 1,341,584 
As of October 31, 2021, unrecognized stock-based compensation expense related to outstanding unvested stock options was $26.1 million, which is expected to be recognized over a weighted-average period of 0.9 years.


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Restricted Stock Units
A summary of restricted stock unit (“RSU”) activity under our equity incentive plan and related information is as follows:
RSUs
Unvested
RSUs
Weighted-
Average
Grant Date Fair Value Per Share
Unvested as of January 31, 2021 4,510,730  $ 194.57 
Granted 2,046,653  $ 312.71 
Vested (1,480,536) $ 187.38 
Canceled/forfeited (233,344) $ 248.84 
Unvested as of October 31, 2021 4,843,503  $ 244.07 
In October 2021, an update made to our equity compensation program resulted in the modification of the value of RSUs offered to our employees. This had an immaterial impact on our condensed consolidated statement of operations for the three months ended October 31, 2021.
As of October 31, 2021, unrecognized stock-based compensation expense related to RSUs was $1,243.8 million, including the impact of the modification, which is expected to be recognized over a weighted-average period of 2.6 years.
2019 Employee Stock Purchase Plan
In April 2019, we adopted the 2019 Employee Stock Purchase Plan (“ESPP”). As of October 31, 2021, unrecognized stock-based compensation expense related to the ESPP was $52.1 million, which is expected to be recognized over a weighted-average period of 1.6 years.
Stock-Based Compensation
The stock-based compensation expense by line item in the accompanying condensed consolidated statements of operations is summarized as follows:
Three Months Ended October 31, Nine Months Ended October 31,
2021 2020 2021 2020
(in thousands)
Cost of revenue $ 17,206  $ 11,287  $ 46,050  $ 22,263 
Research and development 27,879  16,035  71,615  31,269 
Sales and marketing 54,220  46,716  156,888  96,237 
General and administrative 15,496  19,887  41,359  29,788 
Total stock-based compensation expense $ 114,801  $ 93,925  $ 315,912  $ 179,557 


9.    Income Taxes
Our tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items arising in the applicable quarter. In each quarter, we update the estimated annual effective tax rate and make a year-to-date adjustment to the provision. The estimated annual effective tax rate is subject to significant volatility due to several factors, including our ability to accurately predict the proportion of our pretax income in multiple jurisdictions and certain book-tax differences.


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The following table provides details of the provision for (benefit from) income taxes:
Three Months Ended October 31, Nine Months Ended October 31,
2021 2020 2021 2020
(in thousands, except percentages)
Income before provision for (benefit from) income taxes $ 410,283  $ 194,021  $ 963,098  $ 413,381 
Provision for (benefit from) income taxes 69,900  (4,621) 78,100  1,675 
Effective tax rate 17.0  % (2.4) % 8.1  % 0.4  %
We had a provision for income taxes of $69.9 million for the three months ended October 31, 2021, and a benefit from income taxes of $4.6 million for the three months ended October 31, 2020. The provision for income taxes was $78.1 million and $1.7 million for the nine months ended October 31, 2021 and 2020, respectively. The provision for income taxes for the three and nine months ended October 31, 2021 consisted primarily of federal, state, and foreign income taxes. For the three and nine months ended October 31, 2021 and 2020, the provision for income taxes and benefit from income taxes differed from the U.S. federal statutory rate primarily due to stock-based compensation and the valuation allowance on the U.S. and the U.K. deferred tax assets. The increase in the provision for the three and nine months ended October 31, 2021 was primarily due to an increase in global income, certain elections and accounting method changes creating additional book-tax differences, as well as a decrease in stock-based compensation for tax purposes. Given their nature, these additional book-tax differences necessitated the recording of deferred tax assets, and a valuation allowance was recorded on those new deferred tax assets.
The realization of tax benefits of net deferred tax assets is dependent upon future levels of taxable income, of an appropriate character, in the periods the items are expected to be deductible or taxable. Based on the available objective evidence during the three and nine months ended October 31, 2021, we continue to believe that it is more likely than not that the tax benefits of the U.S. and the U.K. net deferred tax assets may not be realized. Accordingly, we recorded a full valuation allowance against the tax benefits of these net deferred tax assets. We intend to maintain the full valuation allowance until sufficient positive evidence exists to support a reversal of, or decrease in, the valuation allowance.
In our valuation allowance evaluation, we give more weight to evidence that can be objectively verified than to evidence that cannot be objectively verified. Our consideration of the evidence requires management to make a number of significant judgements, estimates, and assumptions about highly complex and inherently uncertain matters. Given our current earnings and anticipated future earnings, we believe that there is a reasonable possibility that in the short-term, sufficient positive evidence may become available that results in a conclusion that a portion of the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition of net deferred tax assets on our condensed consolidated balance sheets and would decrease income tax expense in the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change based on a number of factors, including but not limited to, the level of profitability (pretax income adjusted for permanent differences) that we are able to accurately forecast and/or acquisitions of other businesses.
During the three and nine months ended October 31, 2021, there were no material changes to the total amount of unrecognized tax benefits and we do not expect any significant changes in the next 12 months.
On March 11, 2021, the American Rescue Plan Act of 2021 (“American Rescue Plan Act”) was passed into law and amended portions of relevant tax laws. The American Rescue Plan Act did not have a significant impact on the provision for income taxes for the three and nine months ended October 31, 2021.


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10.    Net Income Per Share Attributable to Common Stockholders
The following table sets forth the computation of basic and diluted net income per share attributable to common stockholders for the periods presented:
Three Months Ended October 31, Nine Months Ended October 31,
2021 2020 2021 2020
Class A Class B Class A Class B Class A Class B Class A Class B
(in thousands, except share and per share data)
Numerator:
Net income $ 276,024  $ 64,359  $ 136,849  $ 61,793  $ 707,188  $ 177,810  $ 256,176  $ 155,530 
Less: undistributed earnings attributable to participating securities (112) —  (202) —  (430) —  (531)
Net income attributable to common stockholders, basic $ 276,024  $ 64,247  $ 136,849  $ 61,591  $ 707,188  $ 177,380  $ 256,176  $ 154,999 
Reallocation of net income attributable to common stockholders (5,756) 5,756  (4,094) 4,094  (15,965) 15,965  (9,083) 9,083 
Net income attributable to common stockholders, diluted $ 270,268  $ 70,003  $ 132,755  $ 65,685  $ 691,223  $ 193,345  $ 247,093  $ 164,082 
Denominator:
Weighted-average shares used in computing net income per share attributable to common stockholders, basic
241,227,457  56,147,554  196,393,625  88,389,381  236,362,585  59,285,041  176,047,037  106,517,444 
Weighted-average shares used in computing net income per share attributable to common stockholders, diluted
243,024,399  62,915,225  200,202,338  99,056,427  238,904,473  66,822,260  178,844,073  118,761,868 
Net income per share attributable to common stockholders, basic
$ 1.14  $ 1.14  $ 0.70  $ 0.70  $ 2.99  $ 2.99  $ 1.46  $ 1.46 
Net income per share attributable to common stockholders, diluted
$ 1.11  $ 1.11  $ 0.66  $ 0.66  $ 2.89  $ 2.89  $ 1.38  $ 1.38 
The potential shares of common stock that were excluded from the computation of diluted net income per share attributable to common stockholders for the periods presented, because including them would have been anti-dilutive, are as follows:
Three Months Ended October 31, Nine Months Ended October 31,
2021 2020 2021 2020
Class A Class B Class A Class B Class A Class B Class A Class B
Unvested RSUs 816,953  —  39,872  —  473,104  —  200,420  — 
Purchase rights committed under the ESPP 584,212  —  —  —  284,454  —  —  — 
Total 1,401,165  —  39,872  —  757,558  —  200,420  — 
The table above does not include 405,156 shares of issued Class A common stock held by us as of October 31, 2021 and 2020 that are reserved for the sole purpose of being transferred to nonprofit organizations.
Item 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with the unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on


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Form 10-Q. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed in the section titled “Risk Factors” and in other parts of this Quarterly Report on Form 10-Q.
Overview
Our mission is to make video communications frictionless and secure.
We provide a communications platform that delivers happiness and helps our users express ideas and connect to others. We connect people through our communications platform, which encompasses unified communications, developer, and events solutions. Our platform is chosen by enterprises around the globe because it is reliable; scalable; secure; easy to deploy, use, and manage; provides an attractive return on investment; and integrates with a vast ecosystem of applications and physical spaces. We believe that face-to-face communications build greater empathy and trust. We strive to live up to the trust our customers place in us by delivering a communications solution while prioritizing their privacy and security. Our 22 co-located data centers worldwide and the public cloud enable us to provide both high-quality and high-definition, real-time video to our customers even in low-bandwidth environments.
We generate revenue from the sale of subscriptions to our communications platform. Subscription revenue is driven primarily by the number of paid hosts as well as purchases of additional products, including Zoom Rooms, Zoom Video Webinars, Zoom Phone, Zoom Events, and Hardware-as-a-Service (“HaaS”) for rooms and phones. A host is any user of our communications platform who initiates a Zoom Meeting and invites one or more participants to join that meeting. We refer to hosts who subscribe to a paid Zoom Meeting plan as “paid hosts.” We define a customer as a separate and distinct buying entity, which can be a single paid user or host or an organization of any size (including a distinct unit of an organization) that has multiple paid hosts. Our Basic offering is free and gives hosts access to Zoom Meetings with core features but with the limitation that meetings with more than two endpoints time-out at 40 minutes. Our paid offerings include our Pro, Business, Enterprise, Education, and Healthcare plans, which provide incremental features and functionality, such as different participant limits, administrative controls, and reporting.
For Zoom Phone, plans include Zoom Phone Pro, which provides extension-to-extension calling or can be used with the Bring Your Own Carrier model wherein the customer connects Zoom Phone to an existing carrier. We also offer Regional Unlimited and Regional Metered calling plans in three specific markets (United States/Canada, United Kingdom/Ireland, and Australia/New Zealand). In addition, we introduced the Global Select plan in August 2020, which allows customers to select from local numbers and domestic calling in more than 45 countries and territories where Zoom has local public switched telephone network (“PSTN”) coverage. In addition, the Zoom United plan launched in December 2020 provides a single license for customers to purchase Zoom Phone, Meetings and chat capabilities as a bundled offering.
Our revenue was $1,050.8 million and $777.2 million for the three months ended October 31, 2021 and 2020, respectively, representing period-over-period growth of 35%. We had net income of $340.4 million and $198.6 million for the three months ended October 31, 2021 and 2020, respectively. Our revenue was $3,028.5 million and $1,768.9 million for the nine months ended October 31, 2021 and 2020, respectively, representing period-over-period growth of 71%. We had net income of $885.0 million and $411.7 million for the nine months ended October 31, 2021 and 2020, respectively. Net cash provided by operating activities was $1,395.9 million and $1,071.8 million for the nine months ended October 31, 2021 and 2020, respectively.
Impact of the COVID-19 Pandemic
In March 2020, the World Health Organization declared COVID-19 a pandemic, affecting many countries around the world. Governments have instituted lockdown or other similar measures to slow infection rates. Many organizations have resorted to mandating employees to work from home, which has resulted in these organizations seeking out video communication solutions like ours to keep employees as productive as possible, even while working from home. Schools, colleges, and universities globally have also closed as a result of this pandemic. Many of these institutions are utilizing our platform to provide remote instruction to their students. To help teachers and students navigate this unprecedented situation, we have temporarily removed the 40-minute time limit for meetings with more than two endpoints from our free Basic accounts for more than 125,000 K-12 domains worldwide.
While we have experienced a significant increase in paid hosts and revenue due to the pandemic, the aforementioned factors have also driven increased usage of our services and have required us to expand our network, data storage, and processing capacity, both in our own co-located data centers as well as through third-party cloud hosting, which has resulted, and is continuing to result, in an increase in our operating costs. Furthermore, a significant portion of the increase in usage of our platform is attributable to free Basic accounts and our removal of the time limit for school domains, which do not generate


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any revenue, but still require us to incur these additional operating costs to expand our capacity. Therefore, the recent increase in usage of our platform has adversely affected, and may continue to adversely affect, our gross margin.
In addition, there is no assurance that we will experience an increase in paid hosts or that new or existing users will continue to utilize our service after the COVID-19 pandemic has tapered globally. Moreover, the tapering of the COVID-19 pandemic, particularly as vaccines become widely available and distributed, may result in a decline in paid hosts and users once individuals are no longer working or attending school from home.
Key Factors Affecting Our Performance
Acquiring New Customers
We are focused on continuing to grow the number of customers that use our platform. Our operating results and growth prospects will depend, in part, on our ability to attract new customers. While we believe there is a significant market opportunity that our platform addresses, it is difficult to predict customer adoption rates or the future growth rate and size of the market for our platform. We will need to continue to invest in sales and marketing in order to address this opportunity by hiring, developing, and retaining talented sales personnel who are able to achieve desired productivity levels in a reasonable period of time.
Expansion of Zoom Across Existing Customers 
We believe that there is a large opportunity for growth with many of our existing customers. Many customers have increased the size of their subscriptions as they have expanded their use of our platform across their operations. Some of our larger enterprise customers start with a deployment of Zoom Meetings with one team, location, or geography, before rolling out our platform throughout their organization. Several of our largest customers have deployed our platform globally to their entire workforce following smaller initial deployments. This expansion in the use of our platform also provides us with opportunities to market and sell additional products to our customers, such as Zoom Phone, Zoom HaaS, Zoom for Home, Zoom Rooms at each office location, Developer Platform solutions, Zoom Events, and Zoom Video Webinars. In order for us to address this opportunity to expand the use of our products with our existing customers, we will need to maintain the reliability of our platform and produce new features and functionality that are responsive to our customers’ requirements for enterprise-grade solutions.
We quantify our expansion across existing customers through our net dollar expansion rate. Our net dollar expansion rate includes the increase in user adoption within our customers, as our subscription revenue is primarily driven by the number of paid hosts within a customer and the purchase of additional products, and compares our subscription revenue from the same set of customers across comparable periods. We calculate net dollar expansion rate as of a period end by starting with the annual recurring revenue (“ARR”) from all customers with more than 10 employees as of 12 months prior (“Prior Period ARR”). We define ARR as the annualized revenue run rate of subscription agreements from all customers at a point in time. We calculate ARR by taking the monthly recurring revenue (“MRR”) and multiplying it by 12. MRR is defined as the recurring revenue run-rate of subscription agreements from all customers for the last month of the period, including revenue from monthly subscribers who have not provided any indication that they intend to cancel their subscriptions. We then calculate the ARR from these customers as of the current period end (“Current Period ARR”), which includes any upsells, contraction, and attrition. We divide the Current Period ARR by the Prior Period ARR to arrive at the net dollar expansion rate. For the trailing 12-months calculation, we take an average of the net dollar expansion rate over the trailing 12 months. Our net dollar expansion rate may fluctuate as a result of a number of factors, including the level of penetration within our customer base, expansion of products and features, and our ability to retain our customers. Our trailing 12-month net dollar expansion rate for customers with more than 10 employees was greater than 130% as of October 31, 2021 and 2020.
Innovation and Expansion of Our Platform
We continue to invest resources to enhance the capabilities of our platform. For example, we have recently introduced a number of product enhancements, including new features for Zoom Phone, Zoom Meetings, and Zoom Video Webinars. We addressed new work-from-home realities with the introduction of Zoom for Home, a solution designed for the home office that combines Zoom software enhancements with compatible hardware. We also expanded our geographic footprint with Zoom Phone availability to a total of 46 countries and territories as of October 31, 2021. Third-party developers are also a key component of our strategy for platform innovation to make it easier for customers and developers to extend our product portfolio with new functionalities. We believe that as more developers and other third parties use our platform to integrate major third-party applications, we will become the ubiquitous platform for communications. We will need to expend additional resources to continue introducing new products, features, and functionality, and supporting the efforts of third parties to enhance the value of our platform with their own applications.


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An end-to-end encryption (“E2EE”) option is available to free and paid Zoom customers globally who host meetings with up to 200 participants. Zoom’s E2EE uses the same AES-256-GCM encryption that secures Zoom meetings by default, but with Zoom’s new E2EE, the meeting host generates encryption keys and uses public key cryptography to distribute these keys to the other meeting participants.
In October 2020, we introduced two additions to the Zoom platform: OnZoom and Zoom Apps. OnZoom is an online event platform for Zoom users to create and host free, paid, and fundraising events. OnZoom is currently offered as a public beta for U.S. users to attend online events. Zoom Apps, which became generally available in July 2021, is a new type of in-product integration that lets users bring their apps into Zoom Meetings to make their meetings more efficient and engaging.
In July 2021, we introduced Zoom Events. Zoom Events provides everything users need to build, host, and manage a virtual or hybrid event. Its capabilities include branded event hubs, multi-session events, chat-based attendee networking, and customizable ticketing and registration. In September 2021, we introduced Zoom Events Conference, an upcoming event type that will allow hosts to organize multi-track and multi-day events. Additionally, we announced new security features and end-to-end encryption for Zoom Phone.
International Expansion
Our platform addresses the communications needs of users worldwide, and we see international expansion as a major opportunity. Our revenue from the rest of world (APAC and EMEA) represented 33% and 31% of our total revenue for the three months ended October 31, 2021 and 2020, respectively, and 33% and 30% of our total revenue for the nine months ended October 31, 2021 and 2020, respectively. We plan to add local sales support in further select international markets over time. We use strategic partners and resellers to sell in certain international markets where we have limited or no direct sales presence. While we believe global demand for our platform will continue to increase as international market awareness of Zoom grows, our ability to conduct our operations internationally will require considerable management attention and resources, and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages, cultures, customs, legal and regulatory systems, alternative dispute systems, and commercial markets.
Key Business Metrics
We review the following key business metrics to measure our performance, identify trends, formulate financial projections, and make strategic decisions.
Customers with More Than 10 Employees
Increasing awareness of our platform and its broad range of capabilities has enabled us to substantially expand our customer base, which includes organizations of all sizes across industries. We define a customer as a separate and distinct buying entity, which can be a single paid host or an organization of any size (including a distinct unit of an organization) that has multiple paid hosts. To better distinguish business customers from our broader customer base, we review the number of customers with more than 10 employees. As of October 31, 2021 and 2020, we had approximately 512,100 and 433,700 customers, respectively, with more than 10 employees. When disclosing the number of customers, we round down to the nearest hundred.
Customers Contributing More Than $100,000 of Trailing 12 Months Revenue
We focus on growing the number of customers that contribute more than $100,000 of trailing 12 months revenue as it is a measure of our ability to scale with our customers and attract larger organizations to Zoom. Revenue from these customers represented 22% and 18% of total revenue for the three months ended October 31, 2021 and 2020, respectively, and 21% and 20% of total revenue for the nine months ended October 31, 2021 and 2020, respectively. As of October 31, 2021 and 2020, we had 2,507 and 1,289 customers, respectively, that contributed more than $100,000 of trailing 12 months revenue, demonstrating our rapid penetration of larger organizations, including enterprises. These customers are a subset of the customers with more than 10 employees.
Non-GAAP Financial Measure
In addition to our results determined in accordance with GAAP, we believe that free cash flow (“FCF”), a non-GAAP financial measure, is useful in evaluating our liquidity.
Free Cash Flow
We define FCF as GAAP net cash provided by operating activities less purchases of property and equipment. We believe that FCF is a useful indicator of liquidity that provides information to management and investors about the amount of cash generated from our operations that, after investments in property and equipment, can be used for future growth. FCF is


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presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of other GAAP financial measures, such as net cash provided by operating activities. It is important to note that other companies, including companies in our industry, may not use this metric, may calculate this metric differently, or may use other financial measures to evaluate their liquidity, all of which could reduce the usefulness of this non-GAAP metric as a comparative measure.
The following table presents a summary of our cash flows for the periods presented and a reconciliation of FCF to net cash provided by operating activities, the most directly comparable financial measure calculated in accordance with GAAP:
Nine Months Ended October 31,
2021 2020
(in thousands)
Net cash provided by operating activities $ 1,395,870  $ 1,071,781 
Less: purchases of property and equipment (111,816) (58,517)
Free cash flow (non-GAAP) $ 1,284,054  $ 1,013,264 
Net cash used in investing activities $ (2,367,098) $ (673,377)
Net cash provided by financing activities $ 20,885  $ 296,242 

Components of Results of Operations
Revenue
We derive our revenue from subscription agreements with customers for access to our communications platform. Our customers generally do not have the ability to take possession of our software. We also provide services, which include professional services, consulting services, and online event hosting, which are generally considered distinct from the access to our communications platform.
Cost of Revenue
Cost of revenue primarily consists of costs related to hosting our communications platform and providing general operating support services to our customers. These costs are related to our co-located data centers, third-party cloud hosting, integrated third-party PSTN services, personnel-related expenses, amortization of capitalized software development and acquired intangible assets, royalty payments, and allocated overhead. We expect our cost of revenue to increase in absolute dollars for the foreseeable future, as we expand our data center capacity due to increased usage stemming from the COVID-19 pandemic. However, the cost of revenue as a percentage of revenue may decrease over time as we scale our data centers to accommodate usage from our increased customer base and as the ratio of free to paid users varies.
Operating Expenses
Research and Development
Research and development expenses primarily consist of personnel-related expenses directly associated with our research and development organization, depreciation of equipment used in research and development, and allocated overhead. Research and development costs are expensed as incurred. We plan to increase our investment in research and development for the foreseeable future, primarily by increasing research and development headcount, as we focus on further developing our platform, enhancing its use cases, and strengthening security and privacy. As a result, we expect our research and development expenses to increase both in absolute dollars and as a percentage of revenue for the rest of the current fiscal year.
Sales and Marketing
Sales and marketing expenses primarily consist of personnel-related expenses directly associated with our sales and marketing organization. Other sales and marketing expenses include advertising and promotional events to promote our brand, such as awareness programs, digital programs, public relations, tradeshows, and our user conference, Zoomtopia, and allocated overhead. Sales and marketing expenses also include credit card processing fees related to sales and amortization of deferred contract acquisition costs. We plan to increase our investment in sales and marketing over the foreseeable future, primarily by increasing the headcount of our direct sales force and marketing investments in demand generation. As a result, we expect our


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sales and marketing expenses to increase both in absolute dollars and as a percentage of revenue for the rest of the current fiscal year.
General and Administrative
General and administrative expenses primarily consist of personnel-related expenses associated with our finance and legal organizations; professional fees for external legal, accounting, and other consulting services; expected credit losses; insurance; indirect taxes; litigation settlements; and allocated overhead. We expect to increase the size of our general and administrative function to support the growth and complexity of our business. As a result, we expect our general and administrative expenses to increase both in absolute dollars and as a percentage of revenue for the rest of the current fiscal year.
Gains on Strategic Investments, Net
Gains on strategic investments, net consist primarily of remeasurement gains or losses on our equity investments.
Interest Income and Other, Net
Interest income and other, net consists primarily of interest income and net accretion on our marketable securities and effect of changes in foreign currency exchange rates.
Provision for Income Taxes
Provision for income taxes consists primarily of income taxes related to federal, state, and foreign jurisdictions where we conduct business.
Results of Operations
The following tables set forth selected condensed consolidated statements of operations data and such data as a percentage of revenue for each of the periods indicated:
Three Months Ended October 31, Nine Months Ended October 31,
2021 2020 2021 2020
(in thousands)
Revenue $ 1,050,756  $ 777,196  $ 3,028,488  $ 1,768,883 
Cost of revenue (1)
270,957  258,727  797,207  554,705 
Gross profit 779,799  518,469  2,231,281  1,214,178 
Operating expenses:
Research and development (1)
98,508  42,582  245,994  111,705 
Sales and marketing (1)
293,698  190,157  810,544  470,886 
General and administrative (1)
96,736  93,488  362,971  227,856 
Total operating expenses 488,942  326,227  1,419,509  810,447 
Income from operations 290,857  192,242  811,772  403,731 
Gains on strategic investments, net 122,421  —  154,497  2,538 
Interest income and other, net (2,995) 1,779  (3,171) 7,112 
Income before provision for (benefit from) income taxes 410,283  194,021  963,098  413,381 
Provision for (benefit from) income taxes 69,900  (4,621) 78,100  1,675 
Net income $ 340,383  $ 198,642  $ 884,998  $ 411,706 
(1) Includes stock-based compensation expense as follows:
Cost of revenue $ 17,206  $ 11,287  $ 46,050  $ 22,263 
Research and development 27,879  16,035  71,615  31,269 
Sales and marketing 54,220  46,716  156,888  96,237 
General and administrative 15,496  19,887  41,359  29,788 
Total stock-based compensation expense $ 114,801  $ 93,925  $ 315,912  $ 179,557 


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Three Months Ended October 31, Nine Months Ended October 31,
2021 2020 2021 2020
(as a percentage of revenue)
Revenue 100  % 100  % 100  % 100  %
Cost of revenue 26  33  26  31 
Gross profit 74  67  74  69 
Operating expenses:
Research and development
Sales and marketing 28  24  27  27 
General and administrative 12  12  13 
Total operating expenses 46  42  47  46 
Income from operations 28  25  27  23 
Gains on strategic investments, net 11  — 
Interest income and other, net
Income before provision for (benefit from) income taxes 39  25  32  23 
Provision for (benefit from) income taxes (1)
Net income 32  % 26  % 29  % 23  %
Comparison of the Three Months Ended October 31, 2021 and 2020
Revenue
Three Months Ended October 31,
2021 2020 % Change
(in thousands)  
Revenue $ 1,050,756  $ 777,196  35  %
Revenue for the three months ended October 31, 2021 increased by $273.6 million, or 35%, compared to the three months ended October 31, 2020. The increase in revenue was due to a combination of subscription services provided to new customers, which accounted for approximately 74% of the increase, and subscription services provided to existing customers, which accounted for approximately 26% of the increase.
Cost of Revenue
Three Months Ended October 31,
2021 2020 % Change
(in thousands)
Cost of revenue $ 270,957  $ 258,727  %
Gross profit 779,799  518,469  50  %
Gross margin 74  % 67  %
Cost of revenue for the three months ended October 31, 2021 increased by $12.2 million, or 5%, compared to the three months ended October 31, 2020. The increase was primarily due to an increase of $21.5 million in personnel-related expenses, which includes an increase of $5.9 million in stock-based compensation expense, mainly driven by additional headcount, and an increase of $6.8 million related to subscription to software-based services; partially offset by a decrease of $20.4 million in costs mainly related to third-party cloud hosting.
Gross margin increased to 74% for the three months ended October 31, 2021 from 67% for the three months ended October 31, 2020. The increase in gross margin was mainly due to increased efficiencies as we expanded our data center capacity to accommodate the increased usage as well as lower rates from third-party cloud hosting providers.


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Operating Expenses
Research and Development
Three Months Ended October 31,
2021 2020 % Change
(in thousands)  
Research and development $ 98,508  $ 42,582  131  %
Research and development expense for the three months ended October 31, 2021 increased by $55.9 million, or 131%, compared to the three months ended October 31, 2020. The increase was primarily due to higher personnel-related expenses of $47.0 million, which includes a $11.8 million increase in stock-based compensation expense, mainly driven by additional headcount.
Sales and Marketing
Three Months Ended October 31,
2021 2020 % Change
(in thousands)
Sales and marketing $ 293,698  $ 190,157  54  %
Sales and marketing expense for the three months ended October 31, 2021 increased by $103.5 million, or 54%, compared to the three months ended October 31, 2020. The increase in sales and marketing expense was primarily due to higher personnel-related expenses of $53.5 million, mainly driven by additional headcount in our sales force to support increased demand, which includes a $7.5 million increase in stock-based compensation expense and a $15.8 million increase in amortization of deferred contract acquisition costs driven by our increase in revenue. The remaining increase was primarily due to an increase of $39.0 million in marketing and sales event-related costs, mainly due to an increase in digital programs.
General and Administrative
Three Months Ended October 31,
2021 2020 % Change
(in thousands)
General and administrative $ 96,736  $ 93,488  %
General and administrative expense for the three months ended October 31, 2021 increased by $3.2 million, or 3%, compared to the three months ended October 31, 2020. The increase in general and administrative expense was primarily due to an increase of $7.7 million in personnel-related expenses, mainly driven by additional headcount, an increase of $4.4 million related to subscription to software-based services, and an increase of $2.4 million in professional services consisting primarily of legal and other professional service fees, partially offset by a decrease of $11.8 million related to a contingent liability for sales and other indirect tax.
Gains on Strategic Investments, Net
Three Months Ended October 31,
2021 2020 % Change
(in thousands)  
Gains on strategic investments, net $ 122,421  $ —  100  %
Gains on strategic investments, net recognized during the three months ended October 31, 2021 was driven by $72.8 million unrealized gains recognized on our publicly traded equity securities and $49.6 million unrealized gains recognized on our privately held equity securities.


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Interest Income and Other, Net
Three Months Ended October 31,
2021 2020 % Change
(in thousands)  
Interest income and other, net $ (2,995) $ 1,779  (268) %
Interest income and other, net for the three months ended October 31, 2021 decreased by $4.8 million, or 268%, compared to the three months ended October 31, 2020. The decrease was primarily attributable to a loss of $4.6 million related to changes in foreign currency exchange rates.
Provision for (Benefit from) Income Taxes
Three Months Ended October 31,
2021 2020 % Change
(in thousands)  
Provision for (benefit from) income taxes $ 69,900  $ (4,621) (1,613) %
Provision for income taxes for the three months ended October 31, 2021 increased by $74.5 million, or 1,613%, compared to the three months ended October 31, 2020. The change was primarily due to an increase in global income, certain elections and accounting method changes creating additional book-tax differences, as well as a decrease in stock-based compensation for tax purposes. Our calculation of income tax expense is dependent in part on forecasts of full-year results.
Comparison of the Nine Months Ended October 31, 2021 and 2020
Revenue
Nine Months Ended October 31,
2021 2020 % Change
(in thousands)  
Revenue $ 3,028,488  $ 1,768,883  71  %
Revenue for the nine months ended October 31, 2021 increased by $1,259.6 million, or 71%, compared to the nine months ended October 31, 2020. The increase in revenue was due to a combination of subscription services provided to existing customers, which accounted for approximately 60% of the increase, and subscription services provided to new customers, which accounted for approximately 40% of the increase.
Cost of Revenue
Nine Months Ended October 31,
2021 2020 % Change
(in thousands)
Cost of revenue $ 797,207  $ 554,705  44  %
Gross profit 2,231,281  1,214,178  84  %
Gross margin 74  % 69  %
Cost of revenue for the nine months ended October 31, 2021 increased by $242.5 million, or 44%, compared to the nine months ended October 31, 2020. In response to the COVID-19 pandemic, we have temporarily removed the 40-minute time limit for meetings with more than two endpoints from our free Basic accounts for more than 125,000 K-12 school domains worldwide. We also continued to experience an increase in usage from paid users as more companies utilized our platform to allow their employees to work remotely. This increase in usage resulted in an increase of $133.3 million in costs related to third-party cloud hosting and our co-located data centers to support the increase in customers and expanded use of our communications platform by existing and new customers. The remaining increase was primarily due to an increase of $71.2 million in personnel-related expenses, which includes an increase of $23.8 million in stock-based compensation expense, mainly driven by additional headcount; an increase of $17.5 million related to subscription to software-based services; and an increase of $8.8 million in professional services, mainly for customer support.


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Gross margin increased to 74% for the nine months ended October 31, 2021 from 69% for the nine months ended October 31, 2020. The increase in gross margin was mainly due to increased efficiencies as we expanded our data center capacity to accommodate the increased usage as well as lower rates from third-party cloud hosting providers.
Operating Expenses
Research and Development
Nine Months Ended October 31,
2021 2020 % Change
(in thousands)  
Research and development $ 245,994  $ 111,705  120  %
Research and development expense for the nine months ended October 31, 2021 increased by $134.3 million, or 120%, compared to the nine months ended October 31, 2020. The increase was primarily due to higher personnel-related expenses of $123.2 million, which includes a $40.3 million increase in stock-based compensation expense, mainly driven by additional headcount, and an increase of $5.4 million related to subscription to software-based services.
Sales and Marketing
Nine Months Ended October 31,
2021 2020 % Change
(in thousands)