This has been a year of new opportunities for investors, thanks to a raft of technology companies making (and about to make) their public market debuts. Yet for all the ink that's been spilled on the likes of Lyft, Uber, and Pinterest, one impressive young company has been largely flying under the radar in advance of its initial public offering (IPO) -- video conferencing specialist Zoom Video Communications (NASDAQ: ZM).
While the company is a "unicorn" -- a private start-up valued at $1 billion or more -- it isn't nearly as high-profile as some other businesses that have gone public this year. And Zoom -- scheduled to begin trading on the Nasdaq exchange Thursday under the ticker ZM -- has an advantage that many of its brethren lack. Not only is it growing quickly, it's already profitable.
What is Zoom?
Zoom provides cloud-based video conferencing services, similar to the offerings of Webex from Cisco Systems and Skype for Business from Microsoft, among others.
Yet even with those titans as competitors, Zoom boasts a laundry list of big-name tech partners -- including some it competes with. Its platform integrates with cloud software applications from a wide variety of companies, including Atlassian, Dropbox, Alphabet, LinkedIn, Microsoft, salesforce.com (NYSE: CRM), and Slack.
Show me the money
For its fiscal 2019 (which ended on Jan. 31), Zoom reported revenue that soared 118% to $330 million. That was on top of 149% growth the year before. After breaking even in 2017 and posting a loss of $3.8 million 2018, Zoom produced profit of $7.6 million in fiscal 2019. Net cash from operations is soaring too, having grown from $9.4 million in fiscal 2017 to $51.3 million in 2019.
Zoom now boasts 344 customers that spend more than $100,000 per year on its services, up from just 54 two years ago. The company's net dollar expansion rate -- which indicates the increasing amount spent by existing customers -- grew to 140% during fiscal 2019.
The company's rare profitability as a start-up is stoking a high degree of interest among potential investors. Earlier this week, Zoom filed its revised S-1, and raised its IPO price range to account for the significant interest in its shares.
The company said in its updated prospectus that it now anticipates a stock price offering in a range of $33 to $35 per share, an increase from its previous range of $28 to $32. That would value Zoom at nearly $9 billion, nine times the valuation it achieved in its most recent funding round as a private company.
Zoom plans to offer 9,911,434 Class A common shares. If priced at the midpoint of its revised range, that would raise about $337 million in capital for the company.
New investors will be in good company
Another indicator that Zoom will likely be successful is the high-profile investors that are already committed to the company. Salesforce said it will invest $100 million at the IPO price in a private deal concurrent with the offering. Atlassian and Dropbox are also investors. Salesforce has an impressive track record when it comes to investing in small tech companies that integrate with its software-as-a-service platform, including taking early stakes in Twilio and DocuSign.
Investors have been intrigued by the wave of highly valued companies making their public debuts this year, and many have gotten caught up in IPO fever. However, it's important to remember that the stock price will likely be volatile for some time following the company's debut. How the shares perform on their first day really isn't a reliable indicator of how Zoom will perform in the weeks and months to come.
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The author(s) may have a position in any stocks mentioned.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Alphabet (A shares), Atlassian, and Twilio. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Atlassian, Microsoft, salesforce.com, and Twilio. The Motley Fool recommends DocuSign. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.