Font size
Dream time
Zoom video communication
the stock is recovering after the company priced an offer of 5.15 million shares at $ 340 each, generating proceeds of $ 1.75 billion before charges. That’s slightly larger than the $ 1.5 billion originally targeted.
The offering will nearly double the company’s cash and marketable securities holdings, which were $ 1.87 billion at 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 he thinks the aggregate will need to be higher to deliver substantial growth through acquisitions. “While [the company now has] a substantial war chest, the money alone does not necessarily contain potential targets such as
RingCentral
or
Twilio
on the table without a huge share of stock in such a deal, ”he wrote. “As Zoom expands its global scale, a 10-figure war chest, if necessary, will also be beneficial to aggressive infrastructure construction.”
Roderick noted that the company announced on Tuesday that it has reached one million users for its cloud-based Zoom Phone service.
“Zoom has made remarkable progress with Zoom Phone in a short time,” he wrote, noting that the service is only two years old. “Looking ahead, we expect Zoom will focus on expanding its relationship with current video customers gained from the pandemic and driving up-selling opportunities through the company’s growing product suite.” Roderick maintained a hold rating on the stock, with a target price of $ 450.
Meanwhile, Morgan Stanley analyst Meta Marshall reiterated her Equal Weight rating and $ 390 price target, but said she feels investors have become too gloomy about the post-Covid outlook.
“While we were once careful, that appreciation was ahead [the long-term] odds, almost 40% of the highs, we think the market has probably gotten a little too negative, ”wrote Marshall. She said the data on Zoom Phone shows just how quickly the platform can add applications, a factor she thinks investors seem to have missed.
Marshall said she expects Zoom will use the money raised to expand the services the platform offers.
“We note that the company has not said anything publicly about possible mergers and acquisitions, 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 believe that the 400-450 million enterprise customers are the most lucrative potential customers, with application extensions in this area making the most sense to us.”
Zoom’s share, a major beneficiary of the home working trend, rose more than 760% from the end of 2019 to the intraday peak of $ 588.84 on Oct. 19. But it has all been one big sell-off ever since, with a share of more than 40% until the end of Tuesday. Zoom shares rose 5.5% late Wednesday afternoon to $ 376.44.
Write to Eric J. Savitz at [email protected]