Zoom is planning to raise $1.5 billion in an upcoming stock offering, WSJ reports.
Why It Matters: Zoom’s video conferencing capabilities became essential in the pandemic, but even if remote work has forever changed the world, people have to return to offices eventually, right? The move is Zoom’s largest stock offering since its trading debut two years ago, and the proceeds from the raise could open up a wide range of options for the video chat provider as it prepares to adapt to post-pandemic life.
Refresher Course: Zoom was founded in 2011 and raised $447.9 million through its initial public offering. Its share price has soared over the past year as “homebound workers and students have been using the company’s services during the coronavirus pandemic.”
- Zoom’s Closing Price Tuesday: $356.81
- Market Cap: $102.05 Billion
Zoom’s turn of fortune has put it center stage, alongside big tech firms vying to push their services for managing pandemic life such as Microsoft and Facebook.
- In November, Zoom posted record sales of $772.2 million in quarterly sales and raised its outlook.
Preparing For The Future: “With the uncertainty of the longevity of the pandemic, it is unclear how long gross margins will be impacted as we remain committed to supporting the global community,” Finance Chief Kelly Steckelberg said.
- Zoom said it expects to grant its underwriter a “30-day option to buy up to an additional $225 million of Class A shares at the public offering price.”
For months here at Cents, we’ve called out how overpriced Zoom ($ZM) stock was, which turned out to be the right call.
This stock offering is probably them raising money to build out additional features to become a bigger platform than just a video calling service. This will be important for their survival and continued growth after the pandemic subsides.
I believe Zoom has a great product with a great lead over other video conferencing platforms, but I am still concerned about the following:
- Zoom is built on the same tech as Ring Central ($RNG), although they execute the product better.
- There are no inherent network effects with video conferencing yet. Each individual can have Zoom, Ring Central, Teams, Slack, Skype, Discord, Hangouts, WebEx and it really doesn’t matter other than call performance.
- I believe video conferencing subscriptions will take a hit after the pandemic subsides. We just don’t know how big of a hit that will be.
Clearly Cathie Wood and ARK Invest does not have these concerns and has built an almost 2% position in the stock.
Zoom ($ZM) is expected to grow at 38% in 2022 and is trading at 46.7x forward Gross Profit. For the ROIC Big Board, if we’re willing to pay this kind of multiple, I would rather have more certainty around growth and stickiness than with Zoom.