Zoom and Pinterest IPOs Offer a Choice Between Reality and Dreams
(Bloomberg Opinion) -- Two technology IPOs priced late on Wednesday. They are — to use a delightful British expression — as different as chalk and cheese.
Zoom Video Communications Inc.’s mission statement is less dreamy: “To make video communications frictionless.” Zoom is not exactly curing cancer, but it has a product that people like, which is notable for software aimed at businesses. It’s also growing fast, and it turns a profit.
And to my surprise, IPO investors embraced Zoom even more warmly than they did Pinterest. Zoom started life as a public company with a market value of more than $9 billion, which excluded the value of shares held by employees and others. Pinterest was around $10 billion.
Zoom shot up on its first day of trading to a market cap of nearly $17 billion, while Pinterest opened about 25 percent higher at about $13 billion. For the smaller Zoom, that means investors were willing to pay a stunning 50 times the company's most recent annual sales, close to four times the comparable multiple for Pinterest. That gives Zoom about the same revenue multiple as Snapchat at its IPO.
The pair offers an investment choice between future promise and current execution. Based on what Pinterest could become, its potential market is much bigger than Zoom’s. But Zoom is the surer bet.
What people do on Pinterest is inherently commercial — like planning weddings and figuring out living room renovations — which is an ideal set-up for the company to rake in money facilitating e-commerce transactions. That’s opportunity and not reality, though.
Right now, Pinterest sells advertising, and its average ad revenue for each Pinterest user is paltry compared with those of digital ad giants such as Google and Facebook Inc., particularly for international users, who make up a large majority of Pinterest’s audience. The company is also awash in red ink like most tech companies going public in the U.S. For every dollar in revenue Pinterest generated last year, it burned 11 cents in cash.
Zoom brought in 7 cents in cash for each dollar in sales. Its management team is admired in Silicon Valley, revenue doubled last year, and its pre-IPO investors — unlike Pinterest’s — made a mint in the IPO.
But it’s hard to imagine Zoom reaching the technology big league. The market for video conferencing is healthy but not titanic, and there’s competition from rich companies that offer video conferencing as an add-on for existing customers. Zoom might be better off folding into a business software supermarket like Microsoft Corp. or Oracle Corp. (The former tried to buy Zoom multiple times, Recode reported on Wednesday.)
It’s unfair, of course, to compare the companies or pit them against each other. They will thrive or falter on their own merits. It’s also tough to predict whether the IPO appeal of realistic Zoom tells us much about the demand for Uber Technologies Inc. and other elite unicorns whose value relies on imagining what they might be in a far-off future.
One fun fact: Morgan Stanley is the banker leading the IPOs of both Zoom and Uber. The same firm that pitched investors on pragmatism this week will be asking investors to bet on wild dreams the next time around.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Shira Ovide is a Bloomberg Opinion columnist covering technology. She previously was a reporter for the Wall Street Journal.
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