Zoom Enters an Awkward Phase

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Loss of Five9 deal raises questions about future expansion options as growth slows

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The drop in Zoom’s market value since the deal was first announced in mid-July erased any premium for Five9 investors. It also sent a strong signal to Zoom’s management that raising the offer price would not go down well with its own shareholders. Both stocks rose on Friday morning.

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Still, the loss of the deal raises questions about Zoom’s future course. The company says it has options; A blog post by founder and CEO Eric Yuan said late Thursday that buying Five9 was “in no way the basis for the success of our platform, nor did it make sense for us to provide a compelling contact center solution to our customers.” was the only way to do it.”

But the combination increased Zoom’s annual revenue by about 15% and spurred its efforts in the market to provide businesses with cloud-based services to run their customer contact centers, also known as CCaaS. goes.

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Therefore, several analysts noted on Friday that the failure of the deal puts Zoom “back to square one.” Rishi Jaluria of RBC Capital wrote that “the barriers to entry into the CCAS market are substantial.” Oppenheimer’s Ittai Kidron noted that Zoom could “double down” on internal efforts such as its video engagement center service, but would lack the “established sales organization and complementary enterprise customer base” that Five9 would have brought.

Other deals may be possible. But Five9’s experience shows that it will be a rough road for Zoom – at least for now. The proposed deal raised the government’s scrutiny over Zoom’s large operations in China, which may still be a factor in other acquisition efforts. Zoom has little cash stash compared to tech giants like Microsoft and Google, which are some of its main competitors, and its stock — down about 45% over the past 12 months — is too volatile to be a trustworthy currency.

Zoom’s own investors have little confidence in its growth potential; The stock has gone from achieving forward sales of more than 50 times a year ago to its current multiple of just 18 times. If Zoom’s single plans pay off, that should at least leave some upside.

Dan Gallagher [email protected] . Feather

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