From WFH boom to RTO bust. Could a Zoom takeover be next? | Panda Anku

– The work-from-home boom may be over, and that’s not good news for a pandemic stock market darling.

Zoom’s weak earnings outlook and falling share price are raising questions about whether the video conferencing company is a one-trick pony that needs to be part of a larger tech company.

However, there can be problems finding a suitor. Competition in the video conferencing business is fierce, which means there are no obvious buyers. And analysts say that even after the stock’s big drop, Zoom is still pretty expensive.

Zoom has to contend with several larger tech giants that already have similar products and probably wouldn’t need or want Zoom’s technology or customer base. Microsoft operates Teams and Skype. Cisco has WebEx, which Eric Yuan, CEO of Zoom, helped build. Google owner Alphabet operates Meet and Chat.

Apple probably wouldn’t make sense as a Zoom buyer either. The company already has the ubiquitous FaceTime video chat platform for its iPhones, iPads, and Macs. And Apple inked a deal in 2020 for a startup called Spaces that will help expand video conferencing technology with virtual reality avatars.

But what about other tech companies that might still want a bigger presence in the video space? Could Zoom be suitable for meta platforms? The Facebook/Instagram/Messenger/WhatsApp owner could potentially give their video ambitions another boost by adding Zoom.

How about Salesforce? There’s an argument for combining Zoom with Slack, which Salesforce planned to buy in 2020 for nearly $28 billion, to create a workplace productivity app that could even more effectively compete with Microsoft’s Teams.

The biggest obstacle to a deal might be Zoom’s price.

Zoom could become private

Argus’ Joseph Bonner noted that while Zoom stock is a long way from its pandemic highs, the company is still tough to swallow — even for a megacap tech with tons of cash.

“An acquisition of Zoom is unlikely due to a number of factors,” Bonner said in an email. “The thesis in favor of an acquisition would be to acquire the asset cheaply since it has lost so much value over the past year. With a market cap of $24 billion, it’s still not that cheap, and a takeover premium would push it to $30 billion or more.”

Bonner believes the price would likely deter any big tech buyers, as would the possibility of a potential deal coming under rigorous scrutiny from Washington regulators. However, Bonner said there was a chance Zoom would be bought by an investment firm so it would no longer be at the mercy of Wall Street’s quarterly earnings reports.

“Think of private equity. That could be an option,” said Bonner.

Others point out that Zoom is hardly the only tech/software company struggling with a post-Covid hangover. The Nasdaq also fell on concerns about rising interest rates and fears of a recession.

“I don’t think it’s fair to say that Zoom is having unique issues right now,” Morningstar analyst Dan Romanoff said in an email. “All software has been attacked in the last 10 months.”

Romanoff added that Zoom is “an innovative company with a great product.” The problem, he said, is that at the height of the pandemic, Zoom was “generating an unsustainable revenue trajectory” and the stock was “grossly overvalued.”

That means a deal would be possible. Romanoff noted that a Slack-Zoom combo might make sense.

“I thought a few years ago that Slack and Zoom should merge because there’s no need for standalone video, phone, and messaging products,” Romanoff said.

But he’s not sure Salesforce wants to buy Zoom, having already paid for Slack, noting that Salesforce “kept that [it is] no other major deals at this time.”

Another possible applicant

However, there is another possible wild card: the enterprise software company Oracle.

“Oracle doesn’t have anything like this in their portfolio and they’ve been serial buyers over the years,” Romanoff said. But he still thinks an Oracle deal for Zoom is highly unlikely because he’s “not sure their balance sheet would allow them such a deal or if they’re even in the market.”

Romanoff added that if a tech company wanted to make a bigger bet on video, it would be cheaper with communications software company RingCentral, which has a market value of just a little over $4 billion.

Zoom could also try to go back and strike a deal of its own if market conditions improve. That could help the company diversify.

“I believe Zoom is more of an acquirer than an acquirer at this point,” said James Fish, an analyst at Piper Sandler.

Zoom had actually hoped to make a big purchase recently when it agreed to buy cloud calling software company Five9 in July 2021. But Zoom canceled the deal just two months later, with CEO Yuan saying that “financial discipline is the foundation of our strategy. “

The-CNN-Wire™ & © 2022 Cable News Network, Inc., a Warner Bros. Discovery company. All rights reserved.

Leave a Comment