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How Will Zoom Shepherd Its Platform Post IPO?

Posted on Thursday, Apr 11th 2019

According to a Global Market Insights report, the global video conferencing market is estimated to grow more than 10% annually to $20 billion by 2024. The growth is driven by continued globalization of organizations and the adoption of remote workplaces by organizations. Recently, Zoom, a Billion Dollar Unicorn in the industry, announced its plans to go public.

Zoom Video Communications’ Offerings

San Jose, California-based Zoom Video Communications was founded in 2011 by WebEx founding engineer Eric Yuan. After WebEx was acquired in 2007 for $3.2 billion, he stayed on as its Corporate Vice President of Engineering at Cisco. By 2011, though, he was getting frustrated with the way Cisco was managing WebEx. Cisco was focused on selling expensive, complex teleconferencing hardware, and was not moving fast enough to reconfigure the underlying systems behind its meeting software to meet the new demands created by the rise of smartphones in the workplace. He saw how WebEx customers were no longer happy and he decided to leave Cisco to set up something of his own on top of the upcoming cloud architecture.

Thus Zoom was born. Today, Zoom integrates cloud video conferencing, online meetings, group messaging, and a conference room offering into one platform. It operates on a freemium model offering its basic meeting solution for one-to-one meetings free of charge for up to 40-minute meetings. Paid plans start at $14.99 a month per host to $19.99 per month per host and provide features such as higher meeting time limits and number of meeting participants, custom meeting IDs, recording solutions, and customer support capabilities.

Customer happiness remains core to Zoom’s business plan. In 2018, its average customer Net Promoter Score (NPS) was over 70. Gartner named Zoom a Leader in its Magic Quadrant for Meeting Solutions based on its “ability to execute” and “completeness of vision.” It has also received high scores across customer review sites, including Gartner Peer Insights, TrustRadius, and G2 Crowd.

Zoom is also focusing on driving a platform strategy. Its platform allows third party developers to build apps that make meetings and conferences simpler for its customers. In January this year, Zoom released its Marketplace where developers can publish apps for everyone to use. The Marketplace consolidates and improves the overall developer experience by migrating the existing features from its legacy developer site into the marketplace. Today, the applications available on Zoom provide customers with access to services like scheduling, ability to access files, generate sales leads, and improved collaboration with their teams.

Zoom Communications’ Financials

Zoom believes that it has built a scalable and sustainable business model. It has thousands of customers of all sizes across industry verticals and geographies and these customers are translating to revenue growth. Revenues have increased from $60.8 million for the year ended January 2017 to $151.5 million for 2018 and $330.5 million for the fiscal year ended January 2019.

Zoom is a rare Unicorn that has delivered revenue growth and profitability. It had recorded a breakeven year in 2017 and a net loss of $3.8 million for the year ended January 2018. For the year ended January 2019, it reported net income of $7.6 million.

Zoom has raised $160.5 million in funding from investors including AME Cloud Ventures, Emergence Capital Partners, Horizons Ventures, IT-FARM, Qualcomm Ventures, Maven Ventures, Sequoia Capital, Bart Swanson, Bill Tai, Carmen Elizabeth Sanchez C., Dan Scheinman, Matt Ocko, Mike Everett, Patrick Soon-Shiong, and Subrah Iyar (founder of Webex). Its last funding round was held in January 2017, when it raised $115 million in a round led by Sequoia Capital that valued it at $1 billion.

Last month, Zoom filed to go public later this year. It has priced the initial offering between $28-$32 per share and plans to raise $348 million and a valuation of $8.7 billion. That is an 8x growth in valuation during the last two years.

Unicorns are facing tough times right now under public scrutiny. Last month, ride sharing service Lyft went public but within ten days of trading, its stock has fallen below its listing price. Earlier this week, Pinterest announced pricing for its IPO at a valuation that is nearly 20% lower than its last recorded valuation. It will be interesting to see how Zoom fares in its public avatar. The one thing that makes it stand out from the others is the fact that it is profitable – albeit fairly small at this stage.

I have written earlier of how a SaaS company following a PaaS strategy can find it easier to grow to that next level through acquisitions. Zoom’s platform strategy will help it make those right moves. I would like to see how it will drive this strategy post its IPO?

More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns.

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