Zoom CEO Eric Yuan is now one of America's wealthiest billionaires as ZM stock shoots for the Moon. Will earnings be able to keep up?
The S&P 500 Index and Dow Jones recently got three newcomers to each index. But the equity benchmarks aren’t the only scoreboards doing the shuffle. The Forbes 39th Annual Richest 400 Americans List had some new additions too.
Listers also moved up and down the rankings as the chaos of the pandemic swelled many billionaires’ fortunes. Musk is now the seventh richest person in America. Meanwhile, Zoom CEO and founder Eric Yuan debuted on the list at #43 with $11 billion.
Most of that is from his equity stake in Zoom. The video conferencing company saw its stock explode 479% since its IPO in April 2019. At that time, Eric Yuan owned 22% of Zoom, which was valued at $9 billion before its stock hit the exchanges.
With its beta app first launched in 2012, the company is now bigger than 3M and Boeing by market cap. In May, Zoom was worth more than the top 7 airlines combined:
Here’s what made ZM shares grow so fast, rocketing Eric Yuan to a place among America’s wealthiest billionaires.
Watch Zoom CEO Eric Yuan discuss his business on CNBC’s “Mad Money” with Jim Cramer one year ago. He cites International Data Corporation forecasts projecting a $43 billion market for his services by 2022:
With a high of $457 per share a week ago, it’s incredible to read this September 2019 headline about Zoom’s stock price:
Could Zoom Stock Zoom to $100?
But don’t call ZM shares a “pandemic stock.”
Blissfully ignorant of 2020’s surprises, the stock market drove shares up 80% the day they went public.
Investors liked that rare tech unicorn that’s already profitable at the IPO, unlike Pinterest and Lyft. Their Spring 2019 IPOs flopped and face-planted, respectively.
The Zoom IPO fetched $752 million right off the bat. But in Q2 this year, it raked in nearly that much cash from operations, reporting revenue of $664 million, a 355% YoY increase.
This is a good time for Zoom bulls to review their investing theses, given the stock’s current valuation, to see if they are prepared to continue holding for the long term.
After its first day of trading, ZM share prices pushed the company’s enterprise value to 49 times annual revenue at the time. Yuan told MarketWatch that didn’t bother him because Zoom would continue vacuuming up market share.
Today, ZM trades at 489 times earnings.
Market research companies like IDC say demand for video conferencing will continue to swell in the coming years. Grand View Research pegged the total value of the global market at $3.85 billion in 2019.
Michael Mankins, a partner with management-consulting firm Bain & Co., says Americans have spent 8-10% more time in meetings each year since 2000. And more of those meetings will be happening over Zoom as part of a stable, long-term trend toward remote work.
A June survey of 500 founders of venture-backed companies by a San Francisco consulting group found some bullish news for Zoom stock:
70 percent of founders… will let some (or all) of their employees continue to work remotely.
…they reported, on average, that 70 percent of formerly office-based employees will be permitted to work remotely.
76 percent of founders reported productivity has either maintained or increased as a result of working remotely.
That’s a sea change in how America works. It will translate to massive growth in the top line for Zoom. The average conference call on Free Conference Call lasts 45-60 minutes. It might not be a coincidence that Zoom’s freemium pricing model allows 40-plus minute calls at the first paid tier of $12/mo.
Moreover, the company’s strong financials are only half the Zoom bulls’ pre-Covid thesis. The other half is Eric Yuan’s business acumen and leadership.
Watch the story behind Yuan’s success:
He started working for Cisco’s video conferencing acquisition, WebEx, and left to start Zoom with a careful catalog of customer complaints to address. Eric Yuan is singularly obsessed with the customer’s experience like Steve Jobs and Jeff Bezos.
Zoom built a reliable app and smooth supporting cloud infrastructure, then focused on excellent customer service. It then offered free group chat before Microsoft did with Skype. Bill Gates has been leapfrogged again: first Apple with smartphones, then Google with mobile OS, now Zoom with video chat.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the securities mentioned.
Last modified: September 23, 2020 2:31 PM