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”.
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”.
-
How to invest in water - and should you?The ultimate in liquid investments, water companies offer investors’ portfolios a range of benefits. How can you invest in water?
-
Act now to avoid inheritance tax on your pension with this one simple changeA quick and easy paperwork change could avoid your children paying inheritance tax on your pension if you act now. Here’s how.
-
The rise and fall of Nicolás Maduro, Venezuela's ruthless dictatorNicolás Maduro is known for getting what he wants out of any situation. That might be a challenge now
-
Polar Capital: a cheap, leveraged play on technologyPolar Capital has carved out a niche in fund management and is reaping the benefits
-
Vaccines inject billions into Big Pharma – how to profit from the sectorThe vaccines subsector received a big fillip from Covid, but its potential extends far beyond combating pandemics. Here's what it means for investors
-
'Investors should keep putting their trust in investment trusts'Interview Peter Walls, manager of the Unicorn Mastertrust fund, analyses investment trusts in a conversation with Andrew Van Sickle
-
Monks Investment Trust is worthy of the spotlightMonks Investment Trust, a global growth trust, sits in the shadow of its stablemate, Scottish Mortgage. But its record warrants attention, says Max King
-
New year, same market forecastsForecasts from banks and brokers are as bullish as ever this year, but there is less conviction about the US, says Cris Sholto Heaton
-
'Expect more policy U-turns from Keir Starmer'Opinion Keir Starmer’s government quickly changes its mind as soon as it runs into any opposition. It isn't hard to work out where the next U-turns will come from
-
Why does Donald Trump want Venezuela's oil?The US has seized control of Venezuelan oil. Why and to what end?
