Zoom Video Communications Inc. plans to join an already active season of initial public offerings, and the videoconferencing company is looking for a high valuation as it seeks to gain more share from legacy-based video communications vendors.
Zoom ZM, +0.00% filed for an IPO in late March and is expected to launch the offering next week, with 20.9 million shares to be sold at an expected price of $28 to $32 a share. The San Jose, Calif.-based video-first communications platform provider plans to list on the Nasdaq under the symbol “ZM.”
Here are five things to know about Zoom.
It’s close to profitability
Unlike many unicorns launching their IPO, Zoom broke even for it most recent fiscal year on revenue of $330.5 million, with an adjusted profit of 3 cents a share. In the previous year, Zoom posted a loss of 11 cents a share on revenue of $151.5 million.
Sales and marketing expenses were 56% of revenue on the year ended Jan. 31, while they were 54% in the year-ago period.
The valuation is high, and could still zoom higher
Should Zoom price at the top of its range, it’s looking at an $8.3 billion market cap. With its most recently reported sales, that puts Zoom at an enterprise value of 25 times its annual revenue. That’s in the ballpark of Okta Inc. OKTA, +0.23% Atlassian Corp. TEAM, -1.54% Twilio Inc. TWLO, +0.02% and the most recent tech company to, IPO PagerDuty Inc. PD, +3.27% according to FactSet data.
That, however, is not counting if the company raises its range, prices above its range or sees its stock rally in its first day of trading, as PagerDuty did in all three cases. Should Zoom price at the top of its range and rally a relatively modest 25%, the company would be valued at just more than 31 times its annual relative, or close to Zscaler Inc. ZS, -1.64% which has one of highest valuation ratios of a software company at nearly 33 times its annual sales. Zscaler’s stock price has already doubled since its IPO a little more than a year ago.
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Zoom is looking to go public at a time the Renaissance IPO ETF IPO, +0.69% has rallied more than 33% on the year, while the S&P 500 index SPX, +0.66% has climbed 16% and the tech-heavy Nasdaq Composite Index has gained more than 20%.
Zoom is native to the cloud, and hopes to capitalize on it
Zoom said it competes with legacy web-based meeting providers like Cisco Systems Inc.’s CSCO, +1.24% Webex and Microsoft Corp.’s MSFT, +0.52% Skype for Business, bundled service providers that offer videoconferences like Alphabet Inc.’s GOOG, +1.10% GOOGL, +1.09% Google, and point solutions providers, including LogMeIn Inc. LOGM, -3.67% The company cited estimates that the videoconference market could reach $43.1 billion in 2022.
“Our approach to video has been substantially different from that taken by others who have attempted to add video to an aging, pre-existing conference call or chat tool,” the company said in its S-1 filing. “We developed a proprietary multimedia router optimized for the cloud that separates content processing from the transporting and mixing of streams.”
Zoom is all about happiness, really
In the S-1, the word “happy” occurs 17 times, “unhappy” occurs twice, while the word “happiness” occurs 34 times. Eric Yuan, Zoom’s president, chief executive and chairman, said in a letter filed with the S-1 that keeping both customers and employees happy was Zoom’s mission.
“Delivering happiness is what we do at Zoom,” he noted in the filing.
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“Ten years ago, I was an engineering leader at a major technology company. I would visit customers, and they would tell me how unhappy they were with the technology in the videoconferencing market,” said Yuan. “This made me unhappy. There had to be something better — something designed for modern video communications, something that would deliver happiness. I knew that we would have to start from scratch to do it right,” Yuan said.
Executives and early investors hold all the power
Zoom is offering 10.9 million class A shares in the IPO to raise $348.1 million, while selling stockholders are offering 10 million class A shares. Atlassian already owns 5.1% of class A shares. So far, the company has raised $160.5 million in five funding rounds with Emergence Capital Partners, Sequoia Capital and Emergence as lead investors, according to Crunchbase.
After the IPO, the company will have 24.7 million class A shares outstanding, which will entitle holders to one vote, and 233.2 million class B shares outstanding, which will have 10 votes and will be convertible to class A shares. The class B shares, the ones not available in the IPO, hold 98.9% of the votes.
Read: 5 things to know from Pinterest’s IPO filing
Of the class B holders, Emergence Capital Partners, represented by partner and Zoom board member Santiago Subotovsky owns 30.4 million shares Class B, or 12.2% of the voting power. That’s only topped by Zoom’s CEO Yuan with 47.3 million shares, or 18.9% of the voting power.
Other Class B holders include Sequoia Capital with 27.6 million shares, or 11.1% of the votes. Sequoia invested $100 million in Zoom back in January 2017. Digital Mobile Venture Ltd. with 21.3 million shares, or 8.5% of votes, and Bucatini Enterprises Ltd. with 14.7 million shares, or 5.9% of votes.
Additionally, Salesforce Ventures LLC, the VC arm of Salesforce.com Inc. CRM, -0.01% agreed to buy $100 million of Class A stock in a private placement at the IPO price, Zoom said.
