By Wallace Witkowski, MarketWatch
Zoom Video Communications Inc. is joining 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 /zigman2/quotes/211319643/composite ZM +4.45% reportedly priced its shares at $36 late Wednesday and is expected to begin trading on Thursday. The company filed for its IPO in late March, with 20.9 million shares to be sold, and had raised its expected pricing to a range of $33 to $35 a share on Tuesday, up from a previously expected range of $28 to $32 a share. Underwriters will have the option of an additional 3.1 million shares to cover overallotments. The San Jose, Calif.-based video-first communications platform provider will 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 and its overallotment options get exercised, it’s looking at a market capitalization of $9.35 billion. With its most recently reported sales, that puts Zoom at an enterprise value of 28.2 times its annual revenue. That’s a premium to Okta Inc. /zigman2/quotes/210420951/composite OKTA +2.02% , Atlassian Corp. /zigman2/quotes/207177221/composite TEAM +2.05% , Twilio Inc. /zigman2/quotes/205796518/composite TWLO +1.27% and the most recent tech company to IPO, PagerDuty Inc. /zigman2/quotes/210571191/composite PD +2.25% , which are in the 23 to 26 range, according to FactSet data.
That, however, isn’t counting if the stock 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 35 times its annual relative, more than Zscaler Inc. /zigman2/quotes/203585803/composite ZS +2.29% , which has one of highest valuation ratios of a software company at 30 times its annual sales. And take into consideration, Zscaler’s stock price has already doubled since its IPO a little more than a year ago.
See also: 5 things to know about the Uber IPO
Zoom is looking to go public as the Renaissance IPO ETF /zigman2/quotes/207665280/composite IPO +0.88% has rallied 30% on the year, while the S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.20% has climbed nearly 16% and the tech-heavy Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP +0.27% has gained nearly 21%.
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 /zigman2/quotes/209509471/composite CSCO -11.19% Webex and Microsoft Corp.’s /zigman2/quotes/207732364/composite MSFT -0.23% Skype for Business, bundled service providers that offer videoconferences like Alphabet Inc.’s /zigman2/quotes/205453964/composite GOOG +0.79% /zigman2/quotes/202490156/composite GOOGL +0.62% Google, and point solutions providers, including LogMeIn Inc. /zigman2/quotes/209469357/composite LOGM 0.00% . 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.”