Zoom Video Is Set to Price IPO as a Rare Profitable Tech Startup

(Bloomberg) -- So-called unicorns – private companies valued at more than $1 billion – have started to move toward the public markets in droves, with Lyft Inc., Uber Technologies Inc. and Pinterest Inc. all joining the rush of technology companies holding initial public offerings.

This week, an even rarer type of tech startup will join them: one that actually makes money. Zoom Video Communications Inc., a San Jose-based provider of video conferencing services, is set to price its shares Wednesday and start trading on the Nasdaq Global Select Market Thursday. In its first IPO filing, Zoom reported net income of $7.6 million for the year ended January on revenue of $331 million, compared with a loss of $3.8 million a year earlier on revenue of $151 million.

That sets it apart from many other companies making up 2019’s IPO boom, which are largely still losing money. Uber’s IPO filing last week revealed a $3 billion operating loss for 2018, bringing the ride-hailing giant’s operating losses over the past three years to more than $10 billion. Lyft went public with a 2018 net loss of $911 million, while Pinterest -- which is also set to price Wednesday -- reported a net loss of $63 million, albeit halved from 2017’s total.

The comparisons are working in Zoom’s favor so far. The company, led by former Cisco Systems Inc. engineer Eric Yuan, increased the price range of its shares Tuesday and is now aiming to raise as much as $730 million, up from the previous target of $668 million. That would give the company – which was valued at about $1 billion in a private fundraising in 2017 -- a market valuation of almost $9 billion. Analysts think that number could go even higher when the stock starts trading.

Impressive Numbers

Zoom’s financials are “one of the most impressive’’ D.A. Davidson has ever seen in an IPO filing, analyst Rishi Jaluria wrote in a note to clients in March, adding that he wouldn’t be surprised if it reached a valuation of $10 billion to $15 billion on its first day as a public company.

The company said its mission is to make video communication “frictionless,” as more employees work remotely and use conferencing services to connect with coworkers. The International Data Corp. has estimated that the segments of the market in which Zoom operates could be worth as much as $43.1 billion by 2022, the filing shows.

Its customers include Uber, which averaged 14 million minutes per month spent in Zoom meetings in 2018, as well as media company Discovery Inc. and software maker VMWare Inc.

Still, the business isn’t without risks. Though the standard disclaimer in many IPO documents -- that the company may never be profitable -- is missing, Zoom cites increased competition, service outages and cybersecurity threats as concerns that investors should be aware of, acknowledging that its security measures have been compromised in the past and could be again.

Zoom also notes its large research and development operations in China, where it employed more than 500 people as of January. This, it said, could expose the company to “market scrutiny regarding the integrity of our solution or data security features,” especially against the backdrop of the Trump administration’s continued efforts to close a trade deal with China.

Morgan Stanley, JPMorgan Chase & Co., Goldman Sachs Group Inc. and Credit Suisse Group AG are leading the IPO for Zoom, which will trade under the ticker ZM.

©2019 Bloomberg L.P.