Equity Dive: Zoom & Five9
Stock Trading history:
Zoom Video Communications Inc. started trading publicly in 2019 and has been one of the biggest beneficiaries of remote work and remote learning. Since its public listing, shares are up well over 450%.
Customer Base Growth:
- Zoom became a household name during the pandemic for providing its free videoconferencing service but paying users also grew significantly (see above).
- Zoom continues to attempt to expand its offerings. In the past year, the company has added several office collaboration products, a cloud phone system, and an all-in-one communications appliance.
Financials / Valuation:
- ZM revenue grew from $623 million to $2.65 billion (325.8%) from FY2020 to FY2021 (ending Jan 31).
- The company raises revenue guidance for FY2022 to $3.975 billion – $3.990 billion (~50% YoY growth).
- At $361.97 per share, Zoom’s EV is close to $102 billion which represents a 32x EV/Forward Gross Profit multiple.
Zoom decided to parlay some of its rising share price into a $14.7 acquisition to secure growth.
Deal Highlights:
- Five9 will help Zoom expand its potential offerings for business and enterprise clients.
- Growth opportunity allows Zoom to tap into a $24 billion contact-center market.
- Zoom’s biggest-ever acquisition (Bought Keybase last year for end-to-end encryption).
- Five9 stockholders will receive 0.5533 shares of Class A common stock of Zoom for each share of Five9 Inc.
- Deal expected to close in the first half of 2022.
Five9 Inc. Details
Five9 Inc (FIVN) is a provider of cloud software for contact centers. The company’s Virtual Contact Center (VCC) cloud platform delivers applications that enable contact center-related customer service, sales, and marketing functions.
- Five9 has over 2,000 customers and processes over 7 billion minutes of calls annually.
- Enterprise represented 83% of LTM total revenue.
At the deal price of $14.7 billion, FIVN would be trading around 38x EV/Forward Gross Profit. FIVN stock gained 7.9% pre-market.
Matthew's Summary:
This acquisition benefits Zoom Phone, the cloud-based calling service. This is a core component of Zoom’s video-first UCaaS (unified communications as a service) strategy that enables customers to replace current private branch exchange (PBX) solutions and consolidate all business communications onto Zoom. In my opinion, this is the next potential growth driver for Zoom as its Zoom Meetings product becomes commoditized.
These companies are trading at expensive multiples, though, and will start lapping pandemic-boosted quarters. The Five9 deal looks like an accretive deal for Zoom with cross-selling and expansion potential ($86 billion combined TAM according to the deal presentation), but I think there are better opportunities at this valuation.
