What's going on?
Zoom Video Communications on Monday announced its biggest get-together yet: the ubiquitous teleconferencing provider is buying cloud computing firm Five9 for a cool $15 billion.
What does this mean?
Zoom shot to prominence during the pandemic as work-from-homers, far-off friends, and locked-down lovers all turned to its slick video-calling service. And Zoom’s revenue shot up too, more than quadrupling last year compared to 2019.
But with people now able to meet more in person, some investors are worried Zoom’s growth could, like the online quiz, become a thing of the past. That might be why Zoom’s first major takeover target is a cloud software provider that helps other companies run their online customer support operations – the sort of business that’s booming regardless of pandemic restrictions. The global “contact center” industry is worth $24 billion and counting – and joining forces should help both Zoom and Five9 better compete with large rivals like Amazon, Cisco, and RingCentral.
Why should I care?
For markets: An expensive call.
Zoom’s stunning 2020 saw its share price soar fivefold – and the company’s taking full advantage of this to fund its purchase of Five9. The “all-stock” deal will hand Five9’s current investors shares of Zoom instead in a swap that values the cloud company around 13% above what it was worth before the deal was announced. That may not sound like much – but it equates to more than 200x Five9’s forecast earnings this year.
Zooming out: Game on.
The Zoom news wasn’t the only merger deal announced on Monday. Italian fashion house Ermenegildo Zegna is listing shares in the US via a “reverse takeover” – while Chinese tech giant Tencent, the world’s biggest video game publisher, is continuing its foreign spending spree by buying UK game developer Sumo for $1.3 billion. That’s an achievement-unlocking 44% premium to the latter’s share price last week.