Investors have been closely following the developments of a number of tech-unicorn IPO’s with much anticipation. But while the markets are focused on these major businesses, a smaller company became Thursday biggest winner after it’s first day of public trading. Zoom Video Communications jumped around 72 percent today as markets jumped in anticipation.
Starting the day at $36 per share, Zoom’s stock listing on the NASDAQ quickly shot up as high as $66, almost doubling before settling to around $62 per share. A maker of video conferencing technology which raised its target IPO share price from $32 to $36 ended the day with a remarkably high valuation, approximately 60 times it’s trailing revenue.
“What a crazy valuation,” said Zoom CEO Eric Yuan in an interview according to MarketWatch. “To be honest, if you told me last week that the stock would perform like this, I would have said, ‘No way.’ But yesterday, with huge demand from investors, it was like, ‘Oh, my God.’ The TAM [total addressable market] is huge. But we truly believe the market opportunity is there, if we execute.”
The strongest selling point of Zoom was its revenue figures, which jumped over 118 percent to $330.5 million last year, backed by a highly profitable subscription business model that’s been consistent. Overall, the company also earned $7.58 million in net income last year, standing out among its competitor tech IPO’s due to the fact that it’s actually profitable.
Much anticipated IPO’s such as Lyft’s saw a massive valuation, but like most tech companies, hasn’t been profitable at all with losses close to a billion dollars in 2018. While the tech industry doesn’t frown on a chronic lack of profitability in it’s rapidly growing start-ups, it’s not surprising that many investors find Zoom’s positive net income refreshing.
Zane Chrane, software analyst at Bernstein, would go on to say that the total market in the video communications sector could reach $43 billion by 2022, and that Zoom could be a major “disruptor” in the niche.
What particularly surprised investors was that Zoom’s entrance on the public markets overshadowed another hotly watched IPO, Pinterest (NYSE: PINS), which also saw significant share price growth but nothing near Zoom’s performance. Despite being more popular, Zoom ended the day with an overall valuation higher than Pinterest’s to the surprise of many.
Despite being half it’s size, Zoom is worth several billion more than Pinterest as of the current moment, largely due to its faster growth and profitability, with the latter having a sales growth of 60 percent in comparison to 118 percent of the former.
“Zoom is that most unusual beast, which is a profitable IPO coming out of the tech sector,” said Roger McNamee, co-founder of investment firm Elevation Partners on CNBC. “From a stock market point of view, that’s the one I find really compelling.”
The video conferencing software provider had a previous valuation on private markets of around $1 billion back in 2017, having drawn interest from tech giants such as Microsoft (NASDAQ: MSFT) which tried to buy it at the time. Currently, the tech start-up has a valuation of $15.9 billion as of the close of Thursday’s markets.