Zoom Fills its War Chest as Pandemic's End Nears
13 January 2021 - 9:38AM
Dow Jones News
By Dan Gallagher
Zoom Video Communications didn't exactly call its own peak, but
the videoconferencing superstar still has good reasons to cash in
on investor enthusiasm.
Zoom filed papers Tuesday to sell $1.5 billion worth of common
stock, its first offering since going public in April 2019. The
shares will be sold by the company, and Zoom included the typical
boiler plate explanation in its filing that the proceeds would be
used for "working capital and general corporate purposes," with the
possibility that the money also could help fund acquisitions though
no current deals are in the works.
Zoom's videoconferencing business is still booming, in large
part because of Covid-19, but investors are already grappling with
what post-pandemic life could mean for the company. The
once-highflying stock is now 40% off its mid-October peak. And
while still richly valued at around 30 times forward sales, it is
no longer the most premium play among cloud stocks. At least a
dozen now carry higher multiples relative to projected sales.
But Zoom is still valued at close to $100 billion, a level that
software companies don't typically reach until they have
established multiple lines of business. So the company still faces
some pressure to show it is no one trick pony.
The company disclosed Tuesday that it has now sold 1 million
seats for its Zoom Phone service, which replaces office telephone
systems. That is a potentially huge market, but also one with very
well-entrenched competitors along with newer challengers such as
Microsoft, Google and RingCentral.
Zoom might also have to look for deals that can expand its
business. According to FactSet, the company has only done one since
going public -- last year's pickup of a small encryption company
called Keybase for an estimated $43 million. Many speculated that
Zoom was competing with Salesforce for the purchase of Slack, but
that deal turned out to have no other bidders. It would have been a
stretch for Zoom anyway. With less than $2 billion in gross cash on
its current balance sheet, Zoom has less on hand than any other
software company valued at more than $100 billion, according to
data from S&P Global Market Intelligence.
Being valued like a player may soon force Zoom to start playing
like one.
Write to Dan Gallagher at dan.gallagher@wsj.com
(END) Dow Jones Newswires
January 12, 2021 17:23 ET (22:23 GMT)
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