Zoom’s lightning-fast ascent to $100 billion made big acquisitions a sudden priority

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4 years ago

July 24, 2021

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Zoom founder Eric Yuan poses in front of the Nasdaq building as the screen shows the logo of the video-conferencing software company Zoom after the opening bell ceremony on April 18, 2019 in New York City. The video-conferencing software company announced it’s IPO priced at $36 per share, at an estimated value of $9.2 billion.

Kena Betancur | Getty Images

Salesforce needed 14 years as a public company to reach a market cap of $100 billion. Getting there required three multibillion-dollar acquisitions and four distinct revenue sources.

When Zoom topped the $100 billion mark last year, it had been public for just over 14 months. The company was reliant on a single product and had completed just one tiny acquisition.

While it’s still just a toddler on the Nasdaq, Zoom is now being forced to take on adult responsibilities for investors, thanks to its unexpectedly rapid ascent. The video chat company’s historic growth during the Covid-19 pandemic vaulted its market cap from $9.2 billion at the time of its 2019 IPO to a peak of $159 billion in October, putting it tentatively even with Cisco.

Zoom has lost about one-third of its value since then, despite reporting 191% revenue growth in the latest quarter, as investors prepare for a post-pandemic future and as competition picks up, most notably from Microsoft Teams.

Still, Zoom is among the 25-most valuable North American tech companies and the only one in that pack to go public in the last four years. Shopify and Snap, which went public in 2015 and 2017, respectively, are the only companies in the group that trade for a richer multiple to sales.

In other words, the stock market is giving Zoom the tools to become a major dealmaker. And Zoom is taking advantage, announcing earlier this week the $14.7 billion purchase of Five9, which sells cloud-based software to call centers.

“It allows them to use their currency to buy things that are impactful,” said Alfred Chuang, a partner at venture firm Race Capital who previously co-founded BEA Systems and sold it to Oracle for $8.5 billion in 2008. “I can’t imagine this will be last one.”

The Five9 deal is one of the 10 largest U.S. enterprise software transactions on record, according to FactSet, and is bigger than any acquisition ever by Amazon, Google, Oracle, Cisco or Adobe. At about 23 times Five9’s expected 2022 revenue, it’s also the second-priciest software deal on a price-to-sales basis, behind only Salesforce’s $27 billion purchase of Slack, which closed earlier this month.

Chuang, who has been friends with Zoom CEO Eric Yuan since his pre-Zoom days at WebEx, says Yuan is now in a position familiar to Salesforce CEO Marc Benioff, whose company has more than doubled in value since mid-2018 to $240 billion.

Both companies are set up to be cloud consolidators as automation changes the future of work and the enterprise software stack of the future gets built, Chuang said. In the three years since reaching a $100 billion market cap, Salesforce has completed four billion-dollar-plus deals, including Slack and the $15.7 billion purchase of Tableau.

“Not everything has worked out,” Chuang said, but he argues it’s important to take take big swings, even if the business is currently in good shape.

“When you have a very fast-growing company and become very successful, most people don’t want to rock the boat,” he said. “Acquisitions are not only useful to acquire customers but are super critical to satisfy a product vision you may have.”

The Cisco connection

Zoom’s initial talks with Five9 date back to last year, according to people familiar with the matter. The CEOs, who both previously worked on collaboration products at Cisco, know each other well and forged a product integration in 2019, when Zoom launched a phone offering.

Yuan was a lead engineer at WebEx when the company was acquired by Cisco in 2007, and Five9 CEO Rowan Trollope ran all of Cisco’s collaboration products, including WebEx, until taking the Five9 job in 2018. They never overlapped at Cisco — Yuan left to start Zoom a year before Trollope joined — but the connection is key as they both saw the challenges of retrofitting a legacy technology company for the cloud era.

Acquisition talks cooled for a while and picked up in the last three months, said people with knowledge of the transaction, who asked not to be named because the discussions were confidential. That’s when Goldman Sachs started advising Zoom on a deal and Five9 hired Frank Quattrone’s Qatalyst Partners.

Zoom also shuffled internal responsibilities this year, putting CFO Kelly Steckelberg in charge of business development, a job that had previously been held by operating chief Aparna Bawa, people close to the matter said. Yuan and Steckelberg drove the Five9 deal, the people said.

Bawa has assumed increased responsibilities elsewhere in the business. She oversees security, privacy and government relations, which all took center stage as Zoom became a widely-used service at large enterprises as well as in education, health care and among religious organizations.

Representatives from Zoom and Five9 declined to comment.

At a Morgan Stanley investor event in March, Steckelberg was asked about Zoom’s plans for the call center.

“Contact center is an absolutely really important part of the phone strategy,” Steckelberg said in response. “The way we approach that today is through partnering. We have great relationships with Five9. Eric and Rowan are very good friends.”

Zoom’s goal is to be not only a video service used for meetings with co-workers and clients, but to become the center of all work communication, including for customer service reps in call centers.

Yuan went a step further in June on Zoom’s quarterly earnings call. He responded to an analyst’s question about contact center expansion by telling investors, “Stay tuned, you will see something.” He followed by suggesting that details could be revealed around the time of the company’s Zoomtopia conference in September.

“I hope we will be able to do more,” he said, indicating that Zoom may go beyond integrations with call center technology providers.

Buy vs. build

A big reason why an agreement took so long to come together was because both stocks were so volatile, people familiar with the talks said. Shares of Zoom and Five9 moved 10% or more in a single week on several occasions this year, making it difficult to come to terms. Ultimately, the acquisition price was a modest 13% premium to Five9’s last closing price before the announcement.

The deal is projected to close in the first half of 2022 and Trollope will continue to run Five9 as a president of Zoom. Five9 adds a projected $650 million in revenue next year to the $4.8 billion in sales that analysts expect from Zoom, according to StreetAccount.

On the investor call following the announcement, Yuan and Trollope said that common customers have been telling them they want to count on a single vendor that can provide communications technology for internal purposes as well as customer service. Zoom could invest in building the product itself, but customers “do not want to wait,” Yuan said.

Analysts like BTIG’s Matt VanVliet said the decision to buy instead of build is the right one.

“Overall, we are encouraged by Zoom’s strategy to supercharge its platform with this acquisition rather than rely purely on its own internal R&D chops, which would have taken years to scale,” wrote VanVliet, who has a buy recommendation on Zoom, in a report on July 19.

Zoom has a long way to go before it can claim to have a portfolio of cloud software products, like Salesforce, Adobe and ServiceNow.

Late last year, the company entered the live events space with the launch of a homegrown product called OnZoom, expanding the video platform beyond the workplace and betting that online gatherings, in some form, are here to stay. In July, Zoom hired Abhisht Arora, a 21-year Microsoft veteran and Teams program manager, as its head of corporate strategy, reporting directly to Yuan.

Between development of new products and big acquisitions into parallel markets, Yuan is trying to ensure that Zoom is more than just a pandemic stock, and that its status as an enterprise giant remains long after we say goodbye to Covid-19.

— CNBC’s Alex Sherman contributed to this report.

WATCH: Zoom’s acquisition of Five9 is a ‘steal of a deal,’ says analyst

Technology

Temu and Shein face massive tariffs. But don’t count them out of the U.S. e-tail scene, experts say

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1 hour ago

May 6, 2025

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Temu and Shein face massive tariffs. But don't count them out of the U.S. e-tail scene, experts say

Photo illustration of the Shein app on the App Store reflected in the Temu logo.

Stefani Reynolds | Afp | Getty Images

The closure of a trade loophole and prohibitive tariffs on China have upended Temu and Shein’s business model in the United States. And yet the e-commerce companies are likely to remain a dominant force in American online retailing, experts suggest.

On Friday, the de minimis rule — a policy that had exempted U.S. imports worth $800 from trade tariffs — officially closed for shipments from China. This has seen Temu and Shein exposed to duties as high as 120% or a flat fee of $100, set to rise to $200 in June.

The small-package tariff exemption had been key to the companies’ ability to maintain budget prices on the merchandise they ship from China. Now that it’s gone, prices on Temu and Shein have been surging, with the former ending direct shipments from outside the U.S. altogether.

The change will be welcomed by many detractors of de minimis, among them U.S. lawmakers, labor unions and retailers, who have argued that Temu and Shein abused the exemption to undercut local businesses and flood the country with illicit and counterfeit products.

But despite the new trade challenges that Temu and Shein face, ecommerce and supply chain experts told CNBC that the companies are still capable of competing with their rivals in the U.S.

“Don’t count them out … Not at all. These kinds of Chinese e-commerce apps are very adept and agile. They have contingency plans in place and have taken the necessary steps to cover the tariffs from a margin perspective,” said Deborah Weinswig, CEO and founder of Coresight Research.

“I personally believe, if anything, [America’s e-commerce] game has been accelerating in favor of Temu and Shein … I wouldn’t be surprised if the competitiveness gap actually continues to widen,” added Weinswig, whose research and advisory firm works with clients across tech, retail and supply chains.

Contingencies in place

The loss of the de minimis exemption had long been anticipated, with U.S. President Donald Trump temporarily closing it in February. In preparation, Temu and Shein had been accelerating localization strategies for the U.S.

Scott Miller, CEO of e-commerce consulting firm pdPlus, told CNBC that Shein and Temu will continue to onboard goods from American sellers onto their apps to protect them from tariffs.

“Many of the current sellers on Temu and Shein are located in China or countries nearby, but not all. Local U.S. companies have been joining these platforms at an accelerating pace … several of our clients have onboarded or began the process of onboarding in just the past few months,” he said.

While margins for more localized brands and other sellers won’t be as high as those for China-based sellers on the platforms, they can be competitive, he said.

He added that in the case of Temu, vendors are attracted to lower fees, lighter competition and greater assistance with onboarding and setting up sales channels compared with what Amazon offers.

Temu, Shein raising prices ahead of Trump administration ending 'de minimis' rule: Report

In recent days, Temu, which is owned by Chinese e-commerce giant PDD Holdings, has begun exclusively offering goods shipped from local warehouses to U.S. shoppers.

Many of those goods are still sourced from China but then shipped in bulk to U.S. warehouses, according to experts. While these bulk items are subject to tariffs, they also benefit from economies of scale.

This development is likely to see the variety of products on Temu scaled back, said Henry Jin, an associate professor of supply chain management at Miami University. However, he added, Temu is likely to resume direct shipments from China, depending on the outcome of the trade war between the U.S. and China.

Shein, meanwhile, has leaned into supply chain expansion, building manufacturing operations in countries such as Turkey, Mexico and Brazil, and reportedly plans to shift to Vietnam.

The company appears to still be shipping directly from China and likely has more room to absorb tariffs because of its “sky-high” margins in its core fast-fashion business, Jin said.

“If there’s one thing that Chinese companies are good at, it’s operating on a razor thin margin in an intensely competitive, if not adverse environment … they find every scrap that they can to survive,” he added.

Competitive prices?

Contingency plans aside, experts agree that Trump’s trade policy will continue to affect prices on Temu and Shein. The companies first announced they were raising prices in mid-April to counter tariffs.

According to data from Coresight, prices across shopping categories on Shein rose between 5% and 50% in the latter half of April, with the sharpest rises seen in toys and games and beauty and health.

However, many e-commerce experts remain confident that Temu and Shein will continue to prove price-competitive.

Coresight’s Weinswig said the two companies have previously been able to offer products at a third of the prices on Amazon for comparable goods. So, even if they more than double the prices to absorb the impacts of tariffs, many goods could remain cheaper than those on American e-commerce sites and retailers.

Jason Wong, who works in product logistics for Temu in Hong Kong, noted this dynamic when speaking to CNBC last month, likening Temu to a dollar store. If prices at the dollar store go from $1 to $2, it’s still a dollar store, he said.

Furthermore, Trump’s trade tariffs on China and other trade partners have also affected American retailers and e-commerce sites like Amazon.

Other advantages

When Forever 21 filed for bankruptcy protection earlier this year, it blamed Shein and Temu’s use of the de minimis exemption, which it said “undercut” its business.

But experts say that exclusively attributing the success of Shein and Temu to that trade loophole misses many of the other factors that have made them smash hits in the U.S.

According to Anand Kumar, associate director of research at Coresight Research, Temu and Shein owe a lot of their success to their very agile supply chains that adapt fast to consumer trends.

For example, Shein’s small-batch production — in which product styles are initially launched in limited quantities, typically around 100-200 items — allows it to test and scale products efficiently.

Shein's Donald Tang: We are not fast fashion but fashion on-demand

Another key is the companies’ applications, which use various strategies to maintain user interest, including frequent phone notifications, product recommendation algorithms and perhaps most notably, constantly displaying discounted prices from promotions and flash sales.

Temu was offering a “mega savings extravaganza” for American consumers on Monday. Some of the bestselling items on sale included stainless steel hook earnings for $1.45 and a fitted mattress pad for $11.54. It’s unclear if the discounted local goods were stockpiled before tariffs came into effect.

In addition, app users will often be met with mini-games that grant different coupons or ways to earn rewards, as well as opportunities to buy “mystery boxes” with assorted products.

That “gamification strategy” definitely plays into the consumer psychology of many U.S. shoppers who often buy items out of the excitement of being able to get a great deal, said Miami University’s Jin.

Experts also flagged that Temu and Shein have been very effective at marketing, including through the harnessing of livestreaming and social media.

On the other hand, according to Coresights’ Weinswig, American retailers have failed to adequately recognize threats from Temu and Shein and adjust their supply chains and pricing models.

Technology

Here are the SpaceX employees who were elected to run Musk’s new company town of Starbase, Texas

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8 hours ago

May 5, 2025

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Here are the SpaceX employees who were elected to run Musk's new company town of Starbase, Texas

The SpaceX Starship sits on a launch pad at Starbase near Boca Chica, Texas, on October 12, 2024, ahead of the Starship Flight 5 test. The test will involve the return of Starship’s Super Heavy Booster to the launch site.

Sergio Flores | Afp | Getty Images

Over the weekend, Elon Musk got his new company town along the Texas Gulf Coast. Controlling the city are three SpaceX employees, who all ran unopposed.

As NBC News reported, the election determining incorporation of the city of Starbase concluded on Saturday night, with 212 votes in favor and only six against. Just 143 votes were needed for the measure to pass.

Starbase was victorious in becoming a type C city, which in Texas applies to a previously unincorporated city, town or village of between 201 and 4,999 inhabitants. The city includes the SpaceX launch facility and company-owned land covering a 1.6 square-mile area.

The mayor is 36-year-old Bobby Peden, who has spent more than 12 years working for SpaceX and is currently vice president for Texas test and launch operations. Prior to joining the rocket maker in 2013, Peden was a graduate research assistant at the University of Texas at Austin, according to his LinkedIn profile.

Starbase has two commissioners, both from the SpaceX employee ranks.

One is Jenna Petrzelka, 39, who was an operations engineering manager at SpaceX until July, and now identifies as a philanthropist, according to her application to be on the ballot. She’s married to Joe Petrzelka, a vice president of Starship engineering and almost 14-year veteran at SpaceX.

The other commissioner is Jordan Buss, 40, a senior director of environmental health and safety for SpaceX who joined the company in 2023.

Musk, who has assumed a central role in President Donald Trump’s administration responsible for slashing the size of the federal government, began acquiring land for SpaceX in Boca Chica, Texas, about a decade ago. The first integrated Starship vehicle launched from the site, known as Starbase, in April 2023, and exploded in mid-flight.

The U.S. Fish and Wildlife Service soon disclosed details about the aftermath of the explosion, including that a “3.5-acre fire started south of the pad site on Boca Chica State Park land,” following the test flight.

State and federal regulators have fined SpaceX for violations of the Clean Water Act, and said the company had repeatedly polluted waters in the Boca Chica area. Environmental advocates and indigenous groups have also sued both the Federal Aviation Administration and SpaceX over the company’s flight tests and launch activity in the area.

Those groups said in legal filings that SpaceX caused harm to local habitat and endangered species due to vehicle traffic, noise, heat, explosions and fragmentation caused by the company’s construction, rocket testing and launch practices.

A SpaceX spokesperson didn’t immediately respond to a request for comment.

In a post on X on Saturday, the account for StarbaseTX wrote, “Becoming a city will help us continue building the best community possible for the men and women building the future of humanity’s place in space.”

WATCH: SpaceX launches third test flight of massive Starship rocket

Technology

Hims & Hers gives weak outlook but says more collaborations are coming

Published

9 hours ago

May 5, 2025

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Hims & Hers gives weak outlook but says more collaborations are coming

Cheng Xin | Getty Images

Shares of Hims & Hers Health fell in extended trading on Monday after the company reported first-quarter earnings that beat analysts’ expectations but offered weaker-than-expected guidance.

Here’s how the company did based on average analysts’ estimates compiled by LSEG:

Earnings per share: 20 cents vs. 12 cents
Revenue: $586 million vs. $538 million

Revenue at the telehealth company increased 111% in the first quarter from $278.2 million during the same period last year, according to a release. Hims & Hers reported a net income of $49.5 million, or 20 cents per share, compared to $11.1 million, or 5 cents per share, during the same period a year earlier.

For its second quarter, Hims & Hers said it expected to report revenue between $530 million and $550 million, short of the $564.6 million expected by analysts polled by StreetAccount. The company said its adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, for the quarter will be between the range of $65 million and $75 million, while StreetAccount analysts were expecting $70.4 million.

Hims & Hers’ stock has had a turbulent start to the year, notching several double-digit moves over the past few months. On April 29, shares rocketed up 20% after Novo Nordisk said it would offer its weight loss drug Wegovy through telehealth providers such as Hims & Hers.

The company said Monday that more collaborations are coming.