Blog – April 2019
Valuation is, at least in part, an art not a science. That much is proved by the share price of the recently IPO’d Zoom Video Communications.
Zoom provides video conferencing, a market that seems to have been talked about for ever, yet the share price on its first day of trading jumped from $36 to $62 and has now reached $68 – nearly double the initial placing. This values the business at c$17bn, over 40x sales revenues for 2018-9!
So why might investors be getting excited – particularly in a market as competitive as video conferencing? As usual it comes down to customers – the business has increased its sales over 5 fold in 2 years – bringing on new, enterprise customers. If that rate of growth continued it would only take 4 years for sales to exceed $8bn, giving a more conservative sales multiple of 2x.
Another factor that may have attracted investors, is the fact that the business is cash generative – particularly when viewed against other IPOs, such as Lyft, the car share app, which warned in its prospectus that it may never be profitable – though reading through the disclaimers you’d wonder why any IPO is ever successful!
Whilst this may seem irrelevant to us mere mortals, running SMEs, the importance of new customer acquisition, recurring subscription models and above all, growth can take valuations at any level from the mundane to the magnificent!