Analysis Of Zoom’s Five9 Acquisition

I’m publishing this series to discuss a topic that I follow closely - cloud stocks, trends, strategy, acquisitions, and more. Please subscribe to my Cloud Stock Analysis series and never miss an article. I like fundamentals-focused business building, and outline the principles of fundamentals-focused business building in my free?Bootstrapping course.

Online video conferencing player Zoom Video Communications (Nasdaq: ZM) has benefited from the pandemic conditions. The company is continuing to expand its market presence through acquisitions. Recently, it announced the acquisition of Five9, its biggest acquisition so far.

Zoom’s Financials

Revenues for the first quarter grew 191% to $956.2 million, shattering the market’s forecast of $908.18 million. Excluding items, Zoom reported an EPS of $1.34, again beating analysts’ estimate of $0.98.

Among key metrics, Zoom now has more than 497,000 customers with more than 10 employees, recording a growth of 87% over the year. Customers contributing more than $100,000 in trailing twelve-month revenues grew 160% to 1,999.

It forecast revenues of $985-$990 million for the second quarter with an EPS of $1.14-$1.15. It expects to end the current year with revenues of $3.975-$3.990 billion and an EPS of $4.56-$4.61. The market was looking for revenues of $991.29 million and an EPS of $1.16 for the quarter and $4 billion for the year with an EPS of $4.68.

Zoom’s Acquisitions

Recently, Zoom announced the acquisition of California-based Five9 (NASDAQ: FIVN) for an estimated $14.7 billion. Founded in 2001 by Gus Laredo, James Southworth, John Sung Kim, Lovepreet Singh, and Ray Soto, Five9 is a provider of cloud software for the enterprise contact center market. It provides access to a cloud-based contact center software that is reliable, secure, and compliant, thus increasing agent productivity and delivering tangible business results, while also creating memorable customer experiences.

As explained by its former?CEO and current Executive Chairman Mark Burklaud, it is a routing engine for customer interactions that intelligently distributes multi-channel interactions between the consumer and the agent in the contact center. Additionally, being a cloud-based solution, the platform also allows companies to migrate to its platform with minimal upfront investment.

The acquisition will allow Zoom to combine its communications platform with Five9’s Contact Center as a Service solution, enhancing Zoom’s presence with enterprise customers, while also allowing it to accelerate its long-term growth opportunity. Analysts believe?that the acquisition will help Zoom expand its overall offerings and enter the $24 billion contact center addressable market.

Five9 reported revenue of $434.9 billion last year. It was trading at $195.65 at a market cap of $13 billion. Five9 went public in 2014 when it raised $70 million by selling shares at $7 apiece. Prior to that, it had raised $71 million in venture funds from investors including SAP Ventures, Partech Ventures, Adams Street Partners, Hummer Winblad Venture Partners, and Mosaic Venture Partners.

Earlier this summer, Zoom had also announced plans to acquire Germany-based Karlsruhe Information Technology Solutions, also known as Kites. Terms of the acquisition were not disclosed. Kites is a startup dedicated to developing real-time Machine Translation solutions. Founded in 2015, Kites was initially set up in Karlsruhe Institute of Technology where co-founders Dr. Alex Waibel and Dr. Sebastian Stüker are faculty members. It has a team of 12 research scientists who will join Zoom to advance multi-language translation capabilities to improve meeting productivity and efficiency for Zoom users.

Zoom has benefited significantly from the pandemic that forced the acceleration of the adoption of virtual meeting capabilities. But analysts believe that while the coronavirus may have helped Zoom become a household name, it faces pressure to find new avenues of growth as economies reopen and remote conferencing requirements drop. It will need to come up with enhanced features to encourage more people to pay for its services.

Its stock is currently trading at $367.54 with a market capitalization of $108.3 billion. It was trading at a 52-week low of $230.00 in August last year and a record high of $588.84 in October last year. Zoom went public last April when it raised $751 million at a valuation of $9.2 billion and a list price of $36.

Disclosure:?All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article.

Looking For Some Hands-On Advice?

For entrepreneurs who want to discuss their specific businesses with me, I’m very happy to assess your situation during my free online?1Mby1M Roundtables, held almost every week. You can also check out my free?Bootstrapping Course, our?Udemy courses,?YouTube channel,?podcast interviews?with VCs and Founders, and, to?follow my writings, click Follow from?here.

Photo by?Chris Montgomery?on?Unsplash