market

Zoom: show time 


No more hiding behind a screen. Video chat apps are having a moment. Houseparty, a start-up, targets teens. Zoom, which is poised to list on public markets this year, is aimed at office workers.

Zoom is easy to use and useful for multinational companies that want to stay in touch with employees scattered throughout the world. Users who feel shy can even apply a beauty filter so they appear more glamorous on screen. What makes the San Jose-based video conferencing company stand out is the fact that it is one of the few start-ups in this year’s initial public offering stampede that reports a profit.

Founder Eric Yuan worked at Cisco, where he saw the high cost of teleconferencing hardware. Zoom is cloud-based so can be used on smartphones, tablets and desktop computers. Unlike Uber, it has kept its business model simple. Like Slack, revenue is derived from a freemium model. Basic one-to-one meetings are free. Longer encounters with more participants require a fee of up to $19.99 per month.

The global video conferencing market is estimated to reach $20bn by 2024, according to Global Market Insights. Zoom has only a teeny slice of the market for now. But revenues have increased from $61m in the year to January 2017 to $330m last financial year. More impressively, it has managed to double revenue in the last year while earning net income of $8m. 

Zoom has done this by keeping a lid on spending. R&D is equal to about 10 per cent of revenue and much of the product development team is based in China, where costs are lower than the US.

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Zoom is already used by companies such as Uber. Backers include Sequoia and a vehicle of Chinese billionaire Li Ka-shing. If things go to plan and the company issues shares priced between $28 and $32 it will achieve a valuation of $8.7bn — more than eight times the size of its last private valuation. Its simple business plan, subscription model and roster of business customers could be a winning combination.

Lex recommends the FT’s Due Diligence newsletter, a curated briefing on the world of mergers and acquisitions. Sign up at ft.com/newsletters.



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