Zoom, the popular video conferencing and online meeting software is soaring. Just two years ago the company was valued privately at $1 billion, or less than $4 a share. Today, it’s worth well over $24 billion.
“What a crazy valuation,” said founder and CEO Eric Yuan, while speaking over the phone with Barron’s after the stock soared from $36 a share to $66 on its first day as a public company back in April. Now, the stock trades above $90, making Zoom the most richly valued publicly traded technology company on Wall Street. Its price-to-sales ratio of over 60 is historic. Computer software leader and Skype developer Microsoft trades at just over eight times sales and Amazon, the leader in e-commerce trades at a market capitalization of roughly three times sales.
Beyond the numbers Zoom reads like a creation straight out of the hit HBO comedy television series Silicon Valley. Zoomtopia, the self-described “sponsors of happiness” annual conference is set for October, where the first astronaut to tweet from space will be the keynote speaker. Chinese born CEO Eric Yuan was denied a U.S. visa eight times before founding the company in 2011. He is now a billionaire, following in the footsteps of fellow tech entrepreneur immigrants like Tesla’s Elon Musk.
The company was rated Glassdoor’s second-best place to work in 2018 and Yuan was ranked the number one CEO. What was once just another video conferencing application has become the next darling of tech. Its mantra of “delivering happiness” is proving true for customers and investors alike. Quarterly revenue more than doubled from the first quarter of last year to $122 million. Zoom projects revenue of $540 million for the next year, implying a forward price-to-sales of more than 50. Based on the valuation multiples of its competitors, investors seem to expect Zoom will outperform its own projections.
Yet despite all the success, many employees have not been able to cash out on their newfound fortune. A 180-day lock-up-period that expires on October 15th is preventing all insiders from selling. In contrast, early investors such as Sequoia Capital have been able to have it both ways. After investing $100 million participating in Zoom’s final private fundraising round in late 2017, the venture capital fund cashed out a fraction of its shares for hundreds of millions of dollars before Zoom went public in April. Lock-up periods are intended to maintain the stock price by preventing a flood of selling that would decrease it, but often spell trouble and attract short selling.
Evaluating the stock performance of Zoom’s tech sector, SaaS, and direct competitors throughout a lock-up period suggests the company’s valuation is at a crossroads.
Selling pressure from a lock-ups expiration tends to limit upside for the next few months before a company either breaks out again or stays flat. By all available metrics Zoom is an expensive stock, so further price increases will likely stem from actual growth rather than speculation. No one knows yet if Zoom will be the next tech giant, but it’s clear the darling of Silicon Valley has already pushed investors valuations to new heights.
.jpg)