Less than two weeks after we made it Stock of the Month, Zoom (NASDAQ: ZM) has just announced its biggest acquisition to date, splashing out $14.7 billion to snap up the cloud-based customer-service software provider Five9.
Five9 is a leader in the call-centre-as-a-service (CCaaS) market — yeah, I didn’t know that was a thing either. In any case, Zoom is purchasing the company in an all-stock deal, with shareholders set to receive just over half a share of Zoom for each Five9 share they own.
So is this good or bad news for $ZM investors?
It’s a little too early to tell yet, but let’s look at what could go right and what could go wrong with this deal:
Zoom has been sitting on a pretty massive cash pile — some $4.6 billion — but the fact that the company’s share price is also up more than 400% since the start of last year means it makes sense to take advantage of this with an all-stock deal.
The obvious goal for Zoom is to continue expanding its customer offering and, in particular, the amount of money it makes from each customer. Investors have begun to question the company’s continued relevance now that the world appears to be re-opening and, even though we believe that the hybrid working model will continue to benefit Zoom, being able to add a new service should allow it to continue growing its customer base and keep squeezing more money out of each of those customers too.
As we’ve spoken about time and time again, mergers and acquisitions can often end up being bad news for investors.
In this case, it appears that Zoom is acquiring Five9 in order to beef out its Zoom Phone offering, which is a cloud-based alternative for landlines in companies. The press release also mentions “significant cross-selling opportunities to each other’s respective customer bases”.
Five9 CEO Rowan Trollope is set to continue on as CEO, which is definitely a good sign. However, it’s unclear as yet if Five9 will continue to operate as before under the Zoom umbrella or be subsumed into Zoom completely. As we’ve seen with the likes of Eventbrite and Ticketfly, the latter can have disastrous consequences.
Zoom has had a phenomenal couple of years and, even as the world slowly gets back to normal, we really believe in the future of the business. As long as this acquisition isn’t simply a case of trying to buy customers and growth, this could be a great move for Zoom.
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Head of Content and Publishing at MyWallSt
James is the head of content and publishing at MyWallSt. James’ favorite stock is Teladoc because he believes that they are at the forefront of revolutionizing the healthcare industry.