Video platform Zoom Video Communications has become a “household name” during the pandemic, say Rob McLean and Michelle Toh on CNN. Just two years ago it was valued at $16bn, but its market capitalisation has since soared above $100bn after millions of people turned to it for remote videoconferencing during lockdown. Now vaccines are allowing more people to get back to the office, so it needs to “find new avenues of growth”.
The solution is a push into the enterprise market. The firm has announced that it will buy cloud contact-centre specialist Five9 for “a whopping $14.7bn”. Five9 provides software to customer-service centres for over 2,000 clients worldwide. Five9’s software helps companies to streamline their customer service operations. It can be difficult for businesses to keep track of all the interactions they have had with a customer across text, phone calls, online chat and email.
Integrating artificial intelligence
Companies need help with “a multichannel approach” and are also increasingly using artificial intelligence in customer service, says Lex in the Financial Times. The $24bn cloud-based call centre service market is growing fast. Five9 could integrate Zoom’s videocalling technology: a customer with “a broken dishwasher” could “simply show the help-desk representative the problem via video rather than attempt a voice-only explanation”. Zoom has become “a proprietary eponym for video calls” since the pandemic began. Sales quadrupled to $2.65bn last year, but management knows that the growth spurt can’t be repeated. Remember that “Kleenex and Xerox... struggled to retain early dominant positions”.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Zoom is popular with “everyday users”, but in the business market Microsoft’s Teams platform is breathing down its neck, says Dan Gallagher in The Wall Street Journal. This deal will give Zoom an extra selling point, allowing it to offer “a more robust portfolio of communication services”. The all-share deal is by far the firm’s biggest to date. Before this tie-up, Zoom’s largest ever purchase was valued at a mere $43m. The deal is a big bet, agrees Alex Wilhelm for TechCrunch. “The Five9 transaction is worth nearly 15% of Zoom’s total market cap; the company is betting a little less than a sixth of its value on a single wager.”
Zoom’s shares trade on a princely 70 times forecast earnings, says Pete Sweeney for Breakingviews. They have provided a “rich currency” to fund this all-stock deal. The trouble is that Five9 “is also exuberantly valued”. The business “has reported a net loss for the last five years” but is trading at 26 times forward sales, “one of the highest in recent software transactions”. Five9 is set to make earnings before interest and tax (Ebit) of $130m in 2023, yielding a measly “0.7% after-tax return” on the $14.7bn purchase price. Returns could be even worse if “well-heeled competitors” such as Microsoft pile into the sector with their own purchases. This deal could herald the start of “an expensive new battle over cloud-based conversations”.
-
Dividend heroes: the investment trusts that have increased their dividends for 20+ yearsInvestment trusts can be a good option for income-focused investors – but which trusts have consistently increased their dividends over the past 20 years?
-
Six reasons not to top up your state pensionA deadline to buy National Insurance credits and top up your state pension is fast approaching. Here’s why it may not be worth it for some people
-
Why CEOs deserve a pay riseOpinion The CEOs of big companies often come under fire for being grossly overpaid. But the truth, as per some economists, is the opposite. Do they merit a pay rise?
-
Rolls-Royce stock jumps 15% – could it climb further?Aircraft-engine group Rolls-Royce’s CEO has been hailed as a hero for spearheading the firm’s recovery. And the future looks bright, says Matthew Partridge
-
The power of private marketsInterview Helen Steers, co-manager of the Pantheon International investment trust, tells MoneyWeek about the vast array of compelling opportunities in private equity
-
Vertex Pharmaceuticals is an uncommon opportunity in rare diseasesVertex Pharmaceuticals operates in a profitable subsector and is poised for further success
-
Global investors have overlooked these top tips in emerging marketsOpinion Chris Tennant, co-portfolio manager of Fidelity Emerging Markets, picks three attractive companies in emerging markets
-
King Coal has not been dethroned yet — should you buy?The demand for coal is only growing, yet investors don’t seem to want to take advantage of the opportunity, says Rupert Hargreaves
-
It’s time to start buying Europe again, says Merryn Somerset WebbOpinion Europe's stocks are cheap and the economic backdrop is starting to look cheerier, says Merryn Somerset Webb
-
Prosus to buy Just Eat for €4.1 billion as takeaway boom fadesFood-delivery platform Just Eat has been gobbled up by a Dutch rival. Now there could be further consolidation in the sector
