Zoom Video Communications (ZM) is set to make its IPO debut
this morning. The company priced its 20.87 mln share IPO at $36, above the
expected range of $33-35, which had been increased from $28-32 earlier in the
week. This shows that there is a good amount of interest in this name.
Zoom is a provider of a cloud-based video-conferencing services. It connects people through easy-to-use video, voice, chat, and content sharing features and enables face-to-face video communicating for thousands of people across disparate devices and locations in a single meeting.
The cornerstone of Zoom's platform is Zoom Meetings, around which the company provides a full suite of products and features and through which users may host and attend video meetings. Many customers also implement Zoom Rooms, a software-based conference room system that enables users to experience Zoom Meetings in their physical meeting spaces. Zoom also more recently launched Zoom Phone, a cloud-based PBX system that complements Zoom Meetings.
Zoom’s platform is adaptable for use to suit a range of organizational needs. For example, records Zoom, a technology company with an all-remote employee base of 1,000 employees holds all of its meetings on Zoom. A hospital, meanwhile, has been able to use Zoom to reduce the number of and time in surgeries by connecting specialists live into its operating room. A university employs Zoom to encourage student participation in its night program.
Zoom says that it has a “unique model that combines viral enthusiasm with a multipronged go-to-market strategy. Viral enthusiasm, it says, begins with users as they experience the Zoom platform – “it just works.” The platform delivers a high-quality, reliable communications experience across devices even with varying bandwidths and network performance. Zoom notes that its platform keeps delivering a productive meeting experience even with up to 40% packet loss. Another benefit is that Zoom's platform enables calendar integration, synchronization with conference room equipment, and parity for features across devices. It's easy to deploy and manage.
Quickly turning to the financials, Zoom generates revenue mostly from subscriptions to its platform. Its revenue growth has been impressive. After posting revenue of $60.8 mln in FY17, that metric jumped 149% to $151.5 mln in FY18 and then more than doubled again in FY19 as revenue rose 118% to $330.5 mln. Note, Zoom has a Jan 31 fiscal year end.
Despite the nice top-line growth, profits have been elusive for Zoom in its recent history. However, it did report a small profit in FY19. Investors should understand that Zoom has been spending significant funds to expand its direct sales force and marketing efforts to attract new customers and to improve its offering.
While Zoom Video may get overlooked in the midst of some very high-profile IPOs (Lyft, Uber, Pinterest, Levi Strauss) in the near-term, we think there are some good things going on here. Our initial thought was more on the negative side as video conferencing strikes us as a commodity business. However, while other legacy systems do have an add-on video component, Zoom notes that it was built specifically for videoconferencing and for the cloud and for mobile devices. On a final note, Zoom has some impressive underwriters on this deal: led by Morgan Stanley, JP Morgan, Goldman Sachs, and Credit Suisse. That certainly gives it some credibility.
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