Zoom Video Communications shares are on the mend after the company priced an offering of 5.15 million shares at $340 each, generating proceeds of $1.75 billion before expenses. That is a little larger than the $1.5 billion originally targeted.
The offering will nearly double the company’s holdings in cash and marketable securities, which stood at $1.87 billion as of the end of the October quarter. Zoom (ticker: ZM) has no long-term debt.
Stifel analyst Tom Roderick says the deal adds financial flexibility, but that he thinks the total would have to be higher in order for the company to achieve substantial growth via acquisitions. “While [the company now has] a sizable war chest, the cash alone doesn’t necessarily put potential targets like RingCentral or Twilio on the table without a huge component of stock in such a deal,” he wrote. “As Zoom builds out its global scale, a 10-figure war chest of cash will also be beneficial for aggressive infrastructure build-out, as needed.”
Roderick noted that the company disclosed Tuesday it has reached one million users for its cloud-based Zoom Phone service.
“Zoom has made remarkable strides in short order with Zoom Phone,” he wrote, noting that the service is just two years old. “Looking ahead, we expect Zoom to focus on expanding its relationship with current video customers gained from the pandemic and driving up-sell opportunities through the company’s growing product suite.” Roderick kept a Hold rating on the stock, with a target of $450 for the price.
Meanwhile, Morgan Stanley analyst Meta Marshall reiterated her Equal Weight rating and $390 price target. but said she thinks investors have become too downbeat about the post-Covid outlook.
“While we were once cautious that valuation was ahead of [the long-term] opportunity, off nearly 40% from highs, we think that the market has likely become a little too negative,” Marshall wrote. She said the data on Zoom Phone shows how quickly the platform can add applications, a factor she said investors seem to have missed.
Marshall said she expect Zoom to use the money it has raised to expand the services the platform offers.
“We would note the company has not said anything publicly about potential M&A, but that platform expansion, similar to what they have done with Phone, makes sense as a way to monetize their installed base,” she wrote. “We continue to think that the 400-450 million enterprise customers are the most lucrative of potential customers, with application extensions in this area making the most sense to us.”
A prime beneficiary of the work from home trend, Zoom’s stock rallied more than 760% from the end of 2019 to the intraday peak at $588.84 on Oct. 19. But it has all been one big selloff since, with the stock down more than 40% through Tuesday’s close. Zoom shares were up 5.5% to $376.44 late on Wednesday afternoon.
Write to Eric J. Savitz at [email protected]
