We no longer support this browser. Using a supported browser will provide a better experience.

Please update your browser.

Close browser message

Zoom Deal Charts New Course in Post-COVID Era

J.P. Morgan’s investment banking team discusses record $2 billion software follow-on for Zoom and outlook for Silicon Valley

How would you define Zoom’s success?

Sanjay Rao
Technology Investment Banking Client Executive

Since its market debut in 2019, Zoom has become an icon of the COVID era and one of the best-performing tech companies, climbing ~10 times from its IPO price. Its founder and CEO has made what he describes as ‘delivering happiness’ to customers, employees and the broader community central to his business ethos and it is reflected in the company’s culture and growth in popularity. This was important to communicate to investors during this equity raise, which connected them to a broader swathe of funds.

Greg Chamberlain
Head of US TMT Equity Capital Markets

As the world is changing, Zoom is a driving force, enabling connection and collaboration worldwide with its high quality, frictionless and secure communications platform. The company had bet on digital transformation and the basic nature of how customers interact as fundamentally changing – COVID accelerated that dramatically as well as the permanence of this change. They had to scale immediately overnight to support the entire world which was an incredible strain. Given the uniqueness of their cultural fabric, they were able to do it successfully.

What does this transaction mean for their business?

SR:

Zoom has had exceptional momentum – if you look at their growth metrics, the company has been consistently delivering results within the software ecosystem. With the additional resources provided from the equity raise we believe Zoom will be in an even stronger position to fully realize their long–term potential whether it be continuing to invest in the business or making strategic acquisitions to shift to being a broader platform.

GC:

The company is focused on maximizing their strategic opportunity they have set and raised this capital opportunistically to strengthen the balance sheet, making it more reflective of the size of the business and the size of the market opportunity. Another objective was to bring new and existing shareholders into the stock who are excited about the long–term value the business is delivering.

How do you see Zoom’s model progress throughout this year and what is the general outlook for collaboration?

SR:

Understanding the “new norm” of what life will look like in a post-pandemic world will be critical – both for enterprises and consumers alike. For Zoom, they envision the future of work to be a hybrid workplace combining the best experience for both in-person and virtual connections – to their credit they had called the evolution of collaboration – I don’t think anyone could have guessed it would come so quickly.

They have developed new and exciting product enhancements and offerings to provide a safe, secure and inclusive experience. The rise of the hybrid work environment will create new opportunities within software and will be exciting to watch unfold. Zoom has also been focusing on the dramatic increase in usage from consumers with recent announcements like OnZoom, which allows paid users to host live events like yoga classes or cooking shows. Innovations like this will enable Zoom to continue to be successful across multiple constituents going forward as the world shifts to a “new norm.”

GC:

The communications and collaboration space has a very large total addressable market – so there is room for multiple players. Zoom has had intense competition from various players since they started, but they have always been able to capture significant market share because of their key differentiators in terms of quality, reliability, usability, and their security will also set them apart.

More broadly, what kind of tech companies do you expect to be raising large amounts of capital this year?

SR:

Given the disruption in software and internet especially, I would expect companies to continue the path of raising capital to accelerate adoption of the opportunity ahead of them. COVID validated that technology has advanced well beyond expectations and the next-generation disruptors will continue raising capital to accelerate the trajectory they have and will continue to see. In some cases, you have seen multiple years of digital transformation being pulled forward into the present, creating a massive opportunity for players within the software ecosystem.

GC:

The “stay private for longer” approach has changed. Activity levels among private tech companies looking to go public is high. The market backdrop and investor appetite for high growth companies is strong and this is driving IPO issuance. Deal activity has been high already in the first months of the year and this is likely to continue through the first half of the year.

How does M&A fit into the landscape?

SR:

M&A continues to provide a critical part of capital allocation within software – disruption within software and internet will continue to be a driving force of consolidation. Given valuations within the software sector, notably with potential buyers, I would expect the pace of M&A to accelerate as companies can use their strong balance sheets and acquisition currency to consolidate businesses to assist in capturing larger addressable opportunities.

Related Insights

Back to top button Back to top

This material (including market commentary, market data, observations or the like) has been prepared by personnel in the Equity Capital Markets Group of JPMorgan Chase & Co. It has not been reviewed, endorsed or otherwise approved by, and is not a work product of, any research department of JPMorgan Chase & Co. and/or its affiliates (“J.P. Morgan”). Any views or opinions expressed herein are solely those of the individual authors and may differ from the views and opinions expressed by other departments or divisions of J.P. Morgan. This material is for the general information of our clients only and is a “solicitation” only as that term is used within CFTC Rule 1.71 and 23.605 promulgated under the U.S. Commodity Exchange Act.

RESTRICTED DISTRIBUTION: This material is distributed by the relevant J.P. Morgan entities that possess the necessary licenses to distribute the material in the respective countries. This material is proprietary and confidential to J.P. Morgan and is for your personal use only. Any distribution, copy, reprints and/or forward to others without permission from, or attribution to, J.P. Morgan is strictly prohibited.

This material is intended merely to highlight market developments and is not intended to be comprehensive and does not constitute investment, legal or tax advice, nor does it constitute an offer or solicitation for the purchase or sale of any financial instrument or a recommendation for any investment product or strategy. Information contained in this material has been obtained from sources believed to be reliable but no representation or warranty is made by J.P. Morgan as to the quality, completeness, accuracy, fitness for a particular purpose or non-infringement of such information. Sources of third party referred to herein retain all rights with respect to such data, and use of such data by J.P. Morgan herein shall not be deemed to grant a license to any third party. In no event shall J.P. Morgan be liable (whether in contract, tort, equity or otherwise) for any use by any party of, for any decision made or action taken by any party in reliance upon, or for any inaccuracies or errors in, or omissions from, the information contained herein and such information may not be relied upon by you in evaluating the merits of participating in any transaction. All information contained herein is as of the date referenced and is subject to change without notice. All market statistics are based on announced transactions. Numbers in various tables may not sum due to rounding.

J.P. Morgan may have positions (long or short), effect transactions, or make markets in securities or financial instruments mentioned herein (or options with respect thereto), or provide advice or loans to, or participate in the underwriting or restructuring of the obligations of, issuers mentioned herein. All transactions presented herein are for illustration purposes only. J.P. Morgan does not make representations or warranties as to the legal, tax, credit, or accounting treatment of any such transactions, or any other effects similar transactions may have on you or your affiliates. You should consult with your own advisors as to such matters. The use of any third-party trademarks or brand names is for informational purposes only and does not imply an endorsement by JPMorgan Chase & Co. or that such trademark owner has authorized JPMorgan Chase & Co. to promote its products or services.

J.P. Morgan is the marketing name for the investment banking activities of JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC (member, NYSE), J.P. Morgan Securities plc (authorized by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority), J.P. Morgan AG (authorized by the German Federal Financial Supervisory Authority (BaFin) and regulated by BaFin and the German Central Bank (Deutsche Bundesbank), J.P. Morgan Securities Australia Limited (ABN 61 003 245 234/AFS Licence No: 238066 and regulated by Australian Securities and Investments Commission) and their investment banking affiliates. J.P. Morgan Securities plc is exempt from the licensing provisions of the Financial and Intermediary Services Act, 2002 (South Africa). For Brazil: Ombudsman J.P. Morgan: 0800-7700847 / ouvidoria.jp.morgan@jpmorgan.com

For Australia: This material is issued and distributed by J.P. Morgan Securities Australia Limited (ABN 61 003 245 234/ AFS Licence No: 238066) (regulated by ASIC) for the benefit of “wholesale clients” only. This material does not take into account the specific investment objectives, financial situation or particular needs of the recipient. The recipient of this material must not distribute it to any third party or outside Australia without the prior written consent of J.P. Morgan Securities Australia Limited. For information on any J.P.Morgan German legal entity see: https://www.jpmorgan.com/country/US/en/disclosures/legal-entity-information#germanyFor information on any other J.P.Morgan legal entity see: https://www.jpmorgan.com/country/GB/EN/disclosures/investment-bank-legal-entity-disclosures © 2021 JPMorgan Chase & Co. All rights reserved.

©2021 JPMorgan Chase & Co. All rights reserved.