Zoom IPO: Analysis and Estimated Gains

Zoom Video Communications is going public. We’ve analyzed the company and estimated prospective investment gains. Please submit your orders by April 16.

Company and Product

Zoom Video Communications is a company operating a video conferencing platform that unifies cloud video conferencing, simple online meetings, and group messaging.

Products include Zoom Meetings (including Zoom Chat), Zoom Rooms, Zoom Conference Room Connector, Zoom Phone, Zoom Video Webinars, Zoom for Developers and Zoom App Marketplace. The following graphic depicts these products:

The following graphic depicts cloud-based communications platform and some of its use cases:

Zoom has customers of all sizes, from individuals to global Fortune 50 organizations. Notable customers include Uber, Slack, Dell, Oracle, Gap.

Market

Zoom addresses Unified Communications and Collaboration market, focusing on

Hosted / Cloud Voice and Unified Communications, Collaborative Applications and IP Telephony Lines segments. IDC estimated that these segments combined represent a $43.1 billion opportunity in 2022.

Financials

Operating Metrics

Net dollar retention tells what percent of revenue from current customers the company retained from the prior year, after accounting for upgrades, downgrades, and churn.

Zoom has demonstrated strong net dollar expansion rate of 140%, while the median net retention for SaaS companies is 106% at the time of IPO.

Use of Proceeds

  • General corporate purposes, including working capital, operating expenses and capital expenditures
  • Acquisitions or strategic investments in complementary businesses, products, services or technologies

Investors

Sequoia Capital

Invested in Apple, Instagram, NVIDIA, Okta, MongoDB

Horizons Ventures

Invested in Facebook, Spotify, Razer

Qualcomm Ventures

Invested in Fitbit, PayPal

Risks

  • Zoom operates in competitive markets, and the failure to compete effectively could harm its business
  • Zoom generates revenue from sales of subscriptions to the platform, and any decline in demand for its platform or for communications and collaboration technologies in general would harm the business

Similar IPOs

Twilio (Cloud communications platform)

IPO performance: +330% 3-month return

Valuation

Zoom has demonstrated impressive financial and operating metrics. Given our predictive model, the company would be traded significantly above other SaaS public companies with Price-to-Sales multiple of 39,6x. In this case, the expected market value of equity is $13.1B, target share price is $50. The forecast return on investment will be 57% if the company goes public at $32 per share.

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