ZM To Be Richly Valued?

Investment Analysis Clubs Saul’s Investing Discussions
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https://www.cnbc.com/2019/04/10/zoom-poised-to-join-most-ric…

Interesting analysis on the upcoming Zoom (ZM) IPO and how it will be valued. And a comparison with some of the other companies that are discussed here often. The expected price range will be $28-32, could be higher of course.

Here’s the math:

At $32, Zoom would have a market value of $8.25 billion. Based on trailing full-year revenue of $330.5 million, that would give Zoom an enterprise value-to-sales ratio of 24.5.

And that assumes it opens at $32. No doubt it will start near the top of valuations. What do you expect with their revenue, growth rate, and profitability?

It’s coming in hot and for good reason. As has been proven time and again these stocks are valued this way for a reason.

Because of Zoom’s 118 percent growth rate, the stock could be considered cheap, even at these lofty multiples. Zscaler’s revenue increased 50 percent in its latest fiscal year, while Okta grew 54 percent and Atlassian by just over 40 percent. If Zoom’s sales growth slows this year to 100 percent, the forward EV/sales multiple at the top end of the IPO range would be about 12.3, compared with 23.1 for Zscaler, 18 for Okta and 20 for Atlassian, according to FactSet.

Of course ZS also ended the year with accelerating growth. 50% for this year is probably too low of an expectation for them. “By just 40%”. How lucky are we to be investing in this paradigm?

But as illustrated time and again “expensive” is a relative term.

And 100% may be too high of an expectation for ZM. Even at 75% growth we’re looking at mid teens FEV/S. And at a nearly $600M run rate.

Would you be interested in a company valued at 15 EV/S that has $600M annual sales and growing at 75% with a 140% $NRR.

One more just for fun and that is verticals for Zoom’s Platform.

UNH, just up the road from me.

https://www.unh.edu/it/kb/article/zoom-an-overview-of-unh-we…

The combination of Zoom’s powerful feature set, the integration of Zoom into myCourses, and its ease of use makes for a compelling case to use this product over other collaboration software on the market

Users of other paid web conferencing products like GoToMeeting or WebEx are encouraged to switch to Zoom to save money.

https://zoom.unh.edu/

And Zoom has integrated with another UNH product, Kaltura, for media hosting and delivery.
So it’s easy to record meetings, classes, or projects directly to the University’s media distribution cloud platform from any device.

Darth

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Just as a follow on, with my report from the field.

I work in an international school. Last week I was in a zoom web conference with an educational consultant learning how to use our new learning management system. It was amazing. The call was being projected and I could either follow the projection or follow on my own screen. I hadn’t even downloaded Zoom before the meeting and I installed it while I was waiting for everyone to sit down. It was incredibly easy. The last videoconference I had attended this was impossible. (as an aside,I did notice that the Houghton Mifflin rep leading the previous conference was using Okta to log in to her account)

Earlier today I overheard a teacher say to his student that he would love to be able to celebrate with his advanced placement students tonight (They just defended their capstone projects), but he had two Zooms in the evening. Yes, he said “Zooms” instead of “Calls”.

My fiance has her own NGO and consultancy in the field of sustainable development. She uses Zoom for every call.

Before January I hadn’t even heard of Zoom. Suddenly it seems like it is everywhere.

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And that assumes it opens at $32. No doubt it will start near the top of valuations. What do you expect with their revenue, growth rate, and profitability?

To clarify, the range they are talking about is the expected offering price, the price the underwriters reach with institutions. Based on recent comparable ipos, they will price over the range. That is, if you met the criteria with your broker and indicated interest before the ipo, you could potentially buy it in the mid-high $30’s.

For example, Elastic’s initial pricing range was high $20’s. They revised it to low-mid $30’s and it ultimately priced at $36. They opened (and closed) at $70. ZS estimated 10-12, raised to 13-15, priced at 16, opened at 27.50, closed at 33. MDB estimated 18-20, raised to 20-22, priced at 24, opened at 33, and closed at 32.

Are you as interested if it opens with a 30 FEV/S ? That is, if it prices at $36, underperforms ZS and ESTC, and closes up “only” 75% at $64. Because if you are, you’d have to think it is outexecuting both of those companies (along with most others in history).

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I was warming up to Zoom. I can see both TWOU, and TDOC use Zoom. I watched 3 youtube videos to better understand competition.

https://youtu.be/abuyVQBfc2c

This one is quite negative and says webex is a lot better in many respects.

https://youtu.be/vnmKN6A3Tf8

This one is neutral but points out the challenges that can come from free open source software such as appearance.in. also zoom does not run in a browser. But the reviewer uses zoom for meetings.

https://youtu.be/-GTNo5M4fyE

This one talks of another software (webinarjam) that has better features than zoom.

It again reopens the issues that I have had with Zoom. There are many options in this crowded field. I cannot see Zoom a disruptor or one with a feature that no one else has. Inclined to wait and see a couple Qs. TBD.

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What is Zoom’s value proposition compared to Microsoft “Skype for Business” - FKA Lync - which has a large enterprise lead in online conferencing? (as only one individual I have hated both Webex and GotoMeeting by comparison)

Darth FYI I live somewhere near you, UNH is also “just up the road” - I’m pretty sure this is the first time I’ve seen my dear old (modernizing at great private expense) alma mater mentioned on these boards!