Zoom IPO: Tip of the Iceberg
Zoom shares soar to exceed market predictions after IPO launch last week
There are various hotly anticipated potential IPOs expected during 2019. Modern tech based disruptors are reaching the point where public investment forms the next stage of their development. Slack, Lyft and Uber were all expected to hit the trading floor this year, and some have already with limited success, but so far it is Zoom Video Communications that has stolen the show.
Zoom shares began trading, on The Nasdaq Global Select Market, last week on the 18th of April under the market abbreviation “ZM”. The video conferencing unicorn had priced its shares in advance of the launch at $36 each, but they began trading at around $61 dollars, nearly double their initial anticipated value. After some fluctuation the current price has exceed $65 dollars a share, vastly exceeding virtually all expectations. The original market cap was expected to be around $9 billion, this grew to $11 billion and now the current share price puts Zoom’s market cap at around $16 billion, valuing the giant as one of the world’s most valuable cloud companies.
UC Today spoke to Oded Gal, Zoom’s Head of Products during last Thursday’s launch to get his reaction.
“Being in this moment is great, this recognition of what we have built. We had great reaction in the media, which has helped increase the interest”
So why was there so much interest in Zoom’s launch?
With other tech companies launching with much less success, and fanfare, it is interesting to note the key difference which made the Zoom offering standout. The main factor is the bottom line, profit. Unlike many other tech businesses which have launched IPOs, Zoom has already reached profitability. It made a profit of around $7.5 million in its financial year 2019, which represented approximately 2% margin, of its $330 million plus overall revenue. This combined with impressive growth, more than doubling revenue year on year from 2018, was a combination too good for traders to overlook.
In fact the interest was so high that a case of mistaken identity saw the value of ZOOM Technologies, whose abbreviation is “ZOOM”, jump of a massive 53,900%. Completely unrelated to the Zoom Video IPO this error by investors reflected the huge market buzz surrounding the launch.
Zoom also represents a great story behind the numbers. The company’s’ CEO and Founder, Eric Yuan, emigrated to the US from China in the late 90s and joined the development team at Webex. Webex, one of the pioneers in the conferencing market, was then sold to Cisco in 2007. After apparently becoming frustrated with the development of the platform under Cisco’s direction, Yuan left to found Zoom in 2011 and the rest is history. Now with the current valuation Yuan’s 20% stake in Zoom makes him a multi billionaire at just 49 years old.
What does this mean for the industry?
It is only encouraging. The hottest IPO of 2019 so far belongs to the communication and collaboration industry. Gal explained to us that despite the success that Zoom have witnessed there is still a huge open sector of the market for them to target.
“Video communication is still something only few people use, most people just do phone calls. But look at the potential video communication has, there is still so much we can do so that everyone, across the board, uses video”
With Zoom continuing to capture the already existing market share, from perennial competitors like Cisco, the scope for garnering further growth in uncharted territory is certainly a tantalising one. Other industry players and analysts have recognised the significance of this milestone. Solving interoperability challenges between potential video rivals is something Pexip relish as their CEO, Odd Sverre Østlie, explains.
“The Zoom IPO is a huge milestone for the collaboration market and signals a shift in how people connect. Video conferencing is a key part of the modern workplace today. Customers want a simple, easy way to meet with anyone and are moving to the likes of Zoom, Microsoft Teams, Google Hangouts Meet, Cisco Webex Teams, and Pexip to do so. In this new world of collaboration, the most successful companies realize that interoperability between video conferencing solutions is key.”
Other industry stalwarts have welcomed the success of Zoom’s public launch as a general indicator of the industry’s good health. Mark Strassman, Senior Vice President and General Manager, UCC at LogMeIn told us more:
“The fact that some of the most highly anticipated IPOs this year are in the collaboration space is a proof point that improving the way we communicate and collaborate at work remains a top priority. As our market continues to mature, all companies need to innovate, push the boundaries of what is possible and simplify their product offerings to work for business leaders and the end-users.”
What next for Zoom?
Perhaps most ominous sign for its competitors is an intent from Zoom that this IPO represents just the beginning. Gal told us that as the market grows Zoom will too, and now it has the added incentive of rewarding their investors.
“We feel that we still have a long way to go, we see this as just the beginning. Now we have reached this stage there is a lot to do to give back to the investors, we feel we have a duty now.”
Zoom have already disrupted the video conferencing market and they now show intent to target other areas of the communication and collaboration industries. Zoom Phone, their cloud based business phone system, is only a recent addition to the portfolio. Already they are adding features, such as contact centre integrations, and preparing to disrupt another area sector of the market. This extremely successful IPO appears to represent just another stage in what may prove to be an extremely exciting future, as Gal perfectly summarises:
“This is just the tip of the iceberg”