Zoom’s Eric Yuan says everybody wants to return to the office. It is a strange admission from the founder of a company whose success is inextricably linked to the pandemic-fuelled rise in working from home. But Zoom knows it has to show no fear about workplaces reopening if it wants to protect its $119bn equity value.
The video call software company’s growth last year will probably never be repeated. Annual sales quadrupled to $2.65bn in the 12 months to January 31, as lockdowns forced millions of people to log into virtual meetings from their dwellings. The app was downloaded nearly half a billion times according to Apptopia — twice as many times as Google’s video chat app. Competitive pricing and an easy-to-use interface countered early privacy problems.
A post-pandemic slowdown is inevitable. But Zoom wants to convince investors that in-person meetings can be seamlessly combined with video calls via conference software Zoom Rooms. It is also promoting Zoom Phone, a RingCentral-like cloud phone system. It projects sales will rise 43 per cent in the current fiscal year — a significant deceleration.
Valued on that forecast, Zoom is trading at a similar multiple to the one Salesforce is paying for workplace messaging company Slack. Salesforce is building up its range of business software. But Zoom is probably too large and expensive to be a future acquisition target.
Zoom has plans for an independent future. Like Salesforce, it is trying to take on Microsoft Teams with a suite of office collaboration products. Free cash flow up 12 times to $1.4bn last year has helped the company to squirrel away $4bn in cash and marketable securities. Expect that money to be spent on partnerships and development of non-video products. There are reports Zoom is interested in business email.
Moving away from video would be difficult. Teams is hardly popular. But it is the default for companies that use Microsoft Office. The pandemic has handed Zoom the sort of brand recognition money cannot buy. But Microsoft has $132bn in its war chest and is busy improving Teams. It will not relinquish its domination over workplace software meekly.
The Lex team is interested in hearing more from readers. Please tell us what you think of Zoom in the comments section below
