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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

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Bitcoin just completed its fourth-ever ‘halving,’ here’s what investors need to watch now

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Bitcoin just completed its fourth-ever 'halving,' here’s what investors need to watch now

Dado Ruvic | Reuters

The Bitcoin network on Friday night slashed the incentives rewarded to miners in half for the fourth time in its history.

The celebrated event, which takes place about once every four years as mandated in the Bitcoin code, is designed to slow the issuance of bitcoins, thereby creating a scarcity effect and allowing the cryptocurrency to maintain its digital gold-like quality.

There may be some speculative trading on the event itself. JPMorgan said it expects to see some downside in bitcoin post-halving and Deutsche Bank said it “does not expect prices to increase significantly.” However, the impact may be bigger months from now, even if bitcoin continues its trend of diminishing returns from its halving day to its cycle top. Two key things to watch will be the block reward and the hash rate.

“While the upcoming Bitcoin halving will create a supply shock as the previous ones had, we believe its impact on the cryptocurrency’s price could be magnified by the concurrent demand shock created by the emergence of spot bitcoin ETFs,” said Benchmark’s Mark Palmer.

The bigger immediate impact will be to the miners themselves, he added. They’re the ones that run the machines that do the work of recording new blocks of bitcoin transactions and adding them to the global ledger, also known as the blockchain.

“Miners with access to inexpensive, reliable power sources are well positioned to navigate the post-halving market dynamics,” said Maxim’s Matthew Galinko in a note Friday. “Some miners, many that are not public, could exit the market with a combination of poor access to power, efficient machines, and capital. Miners with capital and relatively expensive power will likely find opportunities in the wake of potential consolidation and disruption driven by the halving.”

The block reward

Miners have two incentives to mine: transaction fees that are paid voluntarily by senders (for faster settlement) and mining rewards — 3.125 newly created bitcoins, or about $200,000 as of Friday evening, when the mining reward shrunk from 6.25 bitcoins. The incentive was initially 50 bitcoins.

The reduction in the block rewards leads to a reduction in the supply of bitcoin by slowing the pace at which new coins are created, helping maintain the idea of bitcoin as digital gold — whose finite supply helps determine its value. Eventually, the number of bitcoins in circulation will cap at 21 million, per the Bitcoin code. There are about 19.6 million in circulation today.

“Miners utilize powerful, specialized computer hardware to validate transactions on the Bitcoin network and record them permanently on the blockchain,” Deutsche Bank analyst Marion Laboure said. “This process, known as mining, rewards miners with newly minted bitcoins. But with each halving, the reward to mining is decreased to maintain scarcity and control the cryptocurrency’s inflation rate over time.”

The hash rate

Historically after a halving, the Bitcoin hash rate – or the total computational power used by miners to process transactions on the Bitcoin network – has fallen, pricing some miners out of the market. It generally recovers in the medium term, however, Laboure pointed out.

The network hash rate has been hitting all-time highs for months as miners tried to take market share ahead of the halving. Growth in the Bitcoin hash rate dilutes individual miners’ contribution to the network hash rate.

“In the past three halvings, the network recovered its pre-halving hash rate levels within an average of 57 days,” she said. “It is also likely that the current elevated prices of bitcoin may limit this short-term dip in the hash rate, as bitcoin miners enjoy record high profits in the lead-up to the halving.”

Palmer said the impact of the halving on bitcoin miners’ economics could be “more than offset over time” if bitcoin’s price rallies keep pushing the cryptocurrency to new highs in the months ahead.

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The Bitcoin network completes the fourth-ever ‘halving’ of rewards to miners

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The Bitcoin network completes the fourth-ever ‘halving’ of rewards to miners

Breaking down Bitcoin's upcoming 'halving' event

The Bitcoin network on Friday evening completed its fourth “halving,” reducing the rewards earned by miners to 3.125 bitcoins from 6.25.

The price of bitcoin has been volatile ahead of the event, and fell about 4% this week to trade around $64,100, according to Coin Metrics.

Mechanically, the halving itself shouldn’t affect the price of bitcoin in the short term, but many investors are expecting big gains in the months ahead, based on the cryptocurrency’s performance after previous halvings. After the 2012, 2016 and 2020 halvings, the bitcoin price ran up about 93x, 30x and 8x, respectively, from its halving day price to its cycle top.

The event is a big test for mining companies, however.

“All else equal, the halving will cut industry revenues in half, triggering a wave of consolidation and business closures, while (hopefully) rationalizing the network hashrate and industry capex, which is ultimately good for the remaining operators,” JPMorgan analyst Reginald Smith said in a recent note to investors.

Hash rates are a measure of the computational power used to process transactions on the bitcoin network. The larger a miner’s hash rate, the greater of a revenue opportunity it has.

Mining stocks have been volatile in the days leading up to the event. Many are down by double digits for the year, after rallying between about 300% and 600% in 2023. Riot Platforms, for instance, is down about 41% in 2024 through Friday’s close, but it surged 356% in 2023.

“The market so far has seen bitcoin mining stocks as mere BTC proxies, in absence of bitcoin ETFs,” said Bernstein analyst Gautam Chhugani. “[The] halving would further differentiate the low cost, high-scale consolidating winners vs. rest of smaller miners which may be disadvantaged post-halving.”

Mining stocks in 2023 and 2024

2024 YTD 2023 return
MARATHON DIGITAL (MARA) -30.2% 586.84%
RIOT PLATFORMS (RIOT) -41.08% 356.34%
CLEANSPARK (CLSK) 54.4% 440.69%
IRIS ENERGY (IREN) -31.68% 472%
CIPHER MINING (CIFR) -7.63% 637.50%

Still, speculators may still trade on the event. Another JPMorgan analyst, Nikolaos Panigirtzoglou, said Thursday that he expects the near-term bitcoin price to fall after the halving, citing overbought conditions and prices that are still above the cryptocurrency’s comparison to gold when adjusted for volatility. He also pointed to subdued venture capital funding of crypto projects.

Analysts at Deutsche Bank have a similar view.

“[The] Bitcoin halving is already partially priced in by the market and we do not expect prices to increase significantly following the halving event,” the firm’s Marion Laboure said in a note Thursday, adding that it “has been widely anticipated in advance due to the nature of the Bitcoin algorithm.”

“Looking ahead, we continue to expect prices to stay high,” she added, citing expectations of future spot Ethereum ETF approvals, future central bank rate cuts and regulatory developments.

Bitcoin is currently trading at just under $64,000, roughly 13% off its March 14 all-time high of $73,797.68.

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Drone startup Zipline hits 1 million deliveries, looks to restaurants as it continues to grow

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Drone startup Zipline hits 1 million deliveries, looks to restaurants as it continues to grow

Autonomous delivery drone startup Zipline said Friday that it hit its 1 millionth delivery to customers and that it’s eyeing restaurant partnerships in its next phase of growth.

The San Francisco-based startup designs, builds and operates autonomous delivery drones, working with clients that range from more than 4,700 hospitals, including the Cleveland Clinic, to major brands such as Walmart and GNC. It’s raised more than $500 million so far from investors including Sequoia Capital, a16z and Google Ventures. Zipline is also a CNBC Disruptor 50 company.

The company said its zero-emission drones have now flown more than 70 million autonomous commercial miles across four continents and delivered more than 10 million products.

The milestone 1 millionth delivery carried two bags of IV fluid from a Zipline distribution center in Ghana to a local health facility.

As the company continues to expand, it will bring on Panera Bread in Seattle, Memorial Hermann Health System in Houston, and Jet’s Pizza in Detroit.

Zipline CEO Keller Rinaudo Cliffton told CNBC that 70% of the company’s deliveries have happened in the past two years and, in the future, the goal is to do 1 million deliveries a day.

“The three areas where the incentive really makes the most sense today are health care, quick commerce and food, and those are the three main markets that we focus on,” Rinaudo Cliffton said. “Our goal is to work with really the best brands or the best institutions in each of those markets.”

The push into restaurant partnerships marks an “obvious transition” he said, due to the continuing growth in interest in instant food delivery. Zipline already delivers food from Walmart to customers.

“We need to start using vehicles that are light, fast, autonomous and zero-emission,” Rinaudo Cliffton said. “Delivering in this way is 10 times as fast, it’s less expensive … and relative to the traditional delivery apps that most restaurants will be working with, we triple the service radius, which means you actually [get] 10 times the number of customers who are reachable via instant delivery.”

Zipline deliveries for some Panera locations in Seattle are expected to begin next year, the Panera franchisee’s Chief Operating Officer Ron Bellamy told CNBC. Delivery continues to grow for its business, even in an inflationary environment, he said. Costs with Zipline are anticipated to be on par with what third-party delivery is now, he added, with the hope of that cost lowering over time. 

“I’m encouraged about it, not just even in terms of what I can do for the business, but as a consumer, I think at the end of the day, if it is economical, and it delivers a better overall experience, then the consumer will speak,” Bellamy said.

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