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.
Robinhood CEO defends payment for order flow, says practice is ‘here to stay’
Vlad Tenev, co-founder and CEO of Robinhood, rings the opening bell at the Nasdaq on July 29, 2021.
Source: The Nasdaq
Robinhood CEO Vlad Tenev says he doesn’t believe that the payment for order flow (PFOF) model of market-maker routing that the company incorporates in the U.S. is under threat.
That’s despite calls from notable consumer trading advocates and regulators for a ban on the practice.
Speaking with CNBC, Tenev defended the practice of PFOF, saying that it’s “inherently here to stay.” He was referring to PFOF as it exists in the United States, where the practice is legal and regulated.
PFOF is the practice of routing trades through market-makers like Citadel Securities in return for a slice of the profits. The phenomenon has helped trading firms like Robinhood drive commissions down to zero, making it cheaper generally for consumers to invest in stocks.
“If I’m a business that’s selling things, and I’m generating transaction revenue, the more you use it, the more money you get. Inherently, there’s a conflict there because I make more money by getting you to transact more,” Tenev told CNBC in an interview.
“I think it’s important not to take the baby out with the bathwater. What does that mean, you shouldn’t make revenue on a transaction-based business? That’s unreasonable. And I think the point has been politicised to some degree.”
PFOF is viewed as controversial because of the perceived conflict of interest it creates between the broker and clients.
Critics say that brokers have an incentive to direct order flow to market makers offering PFOF arrangements over the interests of their clients.
PFOF is banned in the U.K., where Robinhood announced plans to launch Thursday.
The U.S. Securities and Exchange Commission had looked at banning PFOF in light of concerns surrounding the practice, but opted not to, while the European Union has imposed a blanket ban on PFOF.
PFOF accounts for a small chunk of Robinhood’s revenues today, Tenev said, while much of its income today comes from net interest income which is generated from cash in user balances.
Transaction-based revenues, which includes PFOF, decreased 7% in Robinhood’s second fiscal quarter to $193 million.
“If you look at equities, PFOF in particular, it’s about 5%. of our revenue, so a much smaller component of the overall pie. And we’ve diversified the business quite a bit,” including other areas like securities lending, margin, and subscriptions.
Robinhood’s race to the bottom on commission fees has forced many major players in the wealth management world to slash their own fees to zero, in turn causing some companies to wind up or sell up to competitors.
“In the U.S., Robinhood came along and really changed the industry,” Tenev said. “The discount brokers that are charging commissions essentially ceased to exist.”
“They had to drop commissions to zero. A lot of them couldn’t survive that transition as standalone companies and ended up consolidating. And we’re still living through the the end result of that.”
Federal judge blocks Montana’s TikTok ban, which would have been the first of its kind
TikTok Music has launched on Wednesday in Australia, Singapore and Mexico to a small group of users.
Jaap Arriens | Nurphoto | Getty Images
A federal judge in Montana has blocked a law that would have resulted in a state-wide ban of TikTok starting on Jan. 1, 2024.
Judge Donald Molloy explained his rationale for issuing the preliminary ruling via a legal filing released Thursday, saying the state of Montana failed to show how the original SB 419 bill would be “constitutionally permissible,” among other reasons.
The ruling represents a setback for Montana, whose Governor Greg Gianforte signed into law the SB 419 bill in May, pitching it as helping “our shared priority to protect Montanans from Chinese Communist Party surveillance.”
“Despite the State’s attempt to defend SB 419 as a consumer protection bill, the current record leaves little doubt that Montana’s legislature and Attorney General were more interested in targeting China’s ostensible role in TikTok than with protecting Montana consumers,” judge Molloy wrote in the filing. “This is especially apparent in that the same legislature enacted an entirely separate law that purports to broadly protect consumers’ digital data and privacy.”
A TikTok spokesperson said in a statement the company is “pleased the judge rejected this unconstitutional law and hundreds of thousands of Montanans can continue to express themselves, earn a living, and find community on TikTok.”
However, the office of the Montana Attorney General said in a statement that the judge’s decision is merely “a preliminary matter at this point.”
“The judge indicated several times that the analysis could change as the case proceeds and the State has the opportunity to present a full factual record,” the Montana Attorney General office said. “We look forward to presenting the complete legal argument to defend the law that protects Montanans from the Chinese Communist Party obtaining and using their data.”
Before the judge’s preliminary ruling, Montana was set to become the first U.S. state to ban the popular video and social media app, which is owned by the China-based tech giant ByteDance.
ByteDance sued Montana in May to “prevent the state of Montana from unlawfully banning TikTok,” the company said at the time. Lawyers for the company said in court filings that Montana failed to support allegations that the Chinese government “could access data about TikTok users, and that TikTok exposes minors to harmful online content.”
In March, U.S. lawmakers raised questions about the relationship between the Chinese government and the app’s parent company ByteDance when they grilled TikTok CEO Shou Zi Chew during a hearing. The lawmakers were concerned that the Chinese Communist Party may be able to access the data of U.S. citizens, and have considered implementing a nation-wide ban on TikTok.
TikTok has tried to assuage national security concerns by emphasizing its “Project Texas” initiative, intended to ensure that the data of U.S. citizens remains in the country via the help of enterprise tech giant Oracle.
Amazon broke federal labor law by calling Staten Island union organizers ‘thugs,’ interrogating workers
Amazon and consultants for the company violated federal labor law by interrogating and threatening employees regarding their union activities, and racially disparaging organizers who were seeking to unionize a Staten Island warehouse, a National Labor Relations Board judge ruled.
The NLRB said Friday that Administrative Law Judge Lauren Esposito found Amazon “committed multiple violations” of federal labor law at its largest warehouse in New York, called JFK8, between May and October 2021, a period that saw an increase in organizing activity.
In April 2022, employees voted to join the Amazon Labor Union, a grassroots group of current and former workers, becoming the first unionized Amazon facility in the U.S. Since that victory, the group has been fighting to reach a contract with Amazon.
The judge in New York heard testimony from Amazon employees, managers and labor consultants in virtual hearings that went on for almost a year. Esposito determined Amazon illegally confiscated organizing pamphlets from employees that were being distributed in on-site breakrooms and conducted surveillance of employees’ organizing activities.
Amazon also violated labor laws when it sent an employee at a neighboring facility to JFK8 home early from his shift and changed his work assignments in retaliation for supporting the union, the judge found. The employee, Daequan Smith, sorted packages at a delivery station called DYY6, down the street from JFK8.
Additionally, the judge found that Amazon broke the law when a “union avoidance” consultant, Bradley Moss, who was hired by the company, threatened employees, telling them it would be “futile” to vote to join the ALU. Amazon and other companies often hire labor consultants like Moss, referred to as “persuaders,” to dissuade workers from unionizing. The company spent $14 million on anti-union consultants in 2022, the Huffington Post reported in March, citing disclosure forms filed with the Department of Labor.
As a result of the ruling, Amazon will be required to post notices reminding workers of their rights at its JFK8 and DYY6 facilities. The company also has to make Smith “whole for any loss of earnings and other benefits,” the NLRB said.
In one exchange with a JFK8 employee, Natalie Monarrez, Moss discussed the union campaign at another Amazon facility, BHM1, in Bessemer, Alabama. Monarrez said Moss told her the Bessemer campaign was “not a serious union drive,” but a “Black Lives Matter protest about social injustice.”
“Moss then pointed to the front of the JFK8 warehouse and said, ‘Just like these guys out here, they’re just a bunch of thugs,'” Esposito wrote in her judgment, citing testimony from Monarrez.
Moss and representatives from Amazon didn’t immediately respond to a request for comment.
Employees at BHM1 voted against joining the Retail, Wholesale and Department Store Union in April 2021, but the results of the election were tossed after the NLRB found Amazon improperly interfered in the vote. A do-over election was held last year, but the results remain too close to call.
Amazon’s labor record has been scrutinized heavily, especially as union organizing ramped up in its warehouse and delivery workforce during the Covid pandemic. The company faces 240 open or settled unfair labor practice charges across 26 states, according to the NLRB, concerning a range of allegations, including its conduct around union elections.
The company has also clashed with Chris Smalls, a former Amazon employee and one of the leaders of ALU. A leaked memo obtained by Vice revealed David Zapolsky, Amazon’s general counsel, had referred to Smalls, a Black man, as “not smart or articulate,” and recommended making him “the face” of efforts to organize workers.
Amazon continues to challenge the JFK8 election results, as well as the NLRB and the union’s conduct during the drive. The agency upheld the results of the election in January.
Sports1 year ago
‘Storybook stuff’: Inside the night Bryce Harper sent the Phillies to the World Series
Sports8 months ago
MLB Rank 2023: Ranking baseball’s top 100 players
Environment6 months ago
Japan and South Korea have a lot at stake in a free and open South China Sea
Sports2 years ago
Team Europe easily wins 4th straight Laver Cup
Environment9 months ago
Game-changing Lectric XPedition launched as affordable electric cargo bike
Technology2 years ago
Game consoles were once banned in China. Now Chinese developers want a slice of the $49 billion pie
Politics2 years ago
Have the last few wobbly weeks seen a turning point for Johnson as PM?
Business1 year ago
Bank of England’s extraordinary response to government policy is almost unthinkable | Ed Conway