Zoom has built a $102bn equity value by becoming the go-to video conferencing app for people trying to stay connected during the pandemic. The San Francisco-based start-up now bets its future will be in phone calls as workers begin to return to the office. It is buying Five9, a call centre technology provider, for $14.7bn or $200.28 per share, including debt, as an all-share transaction.
Perhaps becoming a proprietary eponym for video calls flattered Zoom’s founders. Yet companies with generic trademarks, such as Kleenex and Xerox, struggled to retain early dominant positions. Zoom understands that its organic burst of growth cannot last. Last year’s explosive growth — sales quadrupled to $2.65bn — will not be repeated. At the same time, rivals, including Microsoft, Google and Facebook, abound.
Acquiring Five9 would give Zoom an immediate foothold in the $24bn market for cloud-based call centre services. The sector is growing quickly. Corporates want help reaching customers using artificial intelligence and a multichannel approach using text, chat and voice calls. Five9, whose customers include Coca-Cola and IBM, has compounded sales at a pace near 30 per cent annually in the three years through 2020.
A merger would allow Zoom to tap into Five9’s corporate client base, cross-selling products such as Zoom Phone. Its cloud-based phone service aims to rival RingCentral, which has a $23bn market value. Five9, in turn, could incorporate Zoom’s video-calling technology as part of its offerings. Customers with a broken dishwasher can simply show the help-desk representative the problem via video rather than attempt a voice-only explanation.
A more than 400 per cent increase in its stock price since the start of 2020 has given Zoom valuable currency to do an all-stock deal. Still, Five9 — which is lossmaking despite 20 years in the business — is no bargain. While Zoom is paying only a 13 per cent premium over Five9’s closing price on Friday, the deal values Five9 at 26 times forward sales. Compare that with rival Twilio, at 24 times forward sales, which made quadruple the turnover last year.
A bigger issue for Zoom is that plenty of companies want to provide call centre technology to midsized and large businesses. Cisco, Avaya, Genesys provide competition. A pricey consideration, plus the lack of detail on potential cost savings, means Zoom will have to work hard to justify this acquisition.
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