Consumer-focused businesses may have more cachet, but technology startups that cater to companies are what is really hot.
Until recently, few people outside the corporate IT department had heard of Zoom Video Communications Inc., ZM 72.22% a specialist in videoconferencing software for companies. Still, the company, which counts tens of thousands of business customers, overshadowed better-known Pinterest Inc., which claims some 265 million monthly users of its online pinboards, when the two companies made their debuts on the stock market Thursday.
Zoom shares soared 72% to close at $62 each from its initial-public-offering price of $36 a share—which itself was a nearly 10-fold jump when Zoom last raised capital privately in 2017.
Pinterest shares rose 28% to close at $24.40 a share. Bankers said its $19-a-share IPO price was above its target range, yet the figure still fell short of the $21.53 when it last raised capital in June 2017.
Zoom ended the day with a market value of $18 billion, while Pinterest was at $16 billion.
Nearly 50 U.S. business-software companies have gone public since 2016, including Twilio Inc., MongoDB Inc. and Zscaler Inc. That compares with 13 consumer-technology companies, such as Dropbox Inc. and Snap Inc.
The business-software companies have performed much better, their shares rising a median 126% from their debuts through Tuesday’s market close, according to a Wall Street Journal analysis of Dealogic data. That compares with a median 15% increase for the consumer-tech companies.
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Why the different reception? For one thing, consumer technology—from smartphones to social media—is dominated by giants that have proven effective at fending off upstart rivals. “It’s hard to compete with Facebook , Apple , Amazon, Netflix and Google,” said Jeff Richards, managing partner at venture firm GGV Capital.
Social-networking company Snap is exhibit A, robbed of momentum after Facebook Inc.’s Instagram mimicked Snap’s core product. Since its 2017 IPO Snap shares have fallen 31%.
The existing players in business technology, including Microsoft Corp. , International Business Machines Corp. , and Oracle Corp. , have less of a stranglehold on their markets. That is largely because the shift to cloud computing—where companies rent computing power, software and services on others’ servers—has disrupted old markets and created vast new opportunities. “Fund managers have made a ton of money on enterprise companies the last few years,” said Mr. Richards.
Shares in little-known PagerDuty Inc., which helps companies manage their web operations, jumped 63% since its IPO last week, giving it a market capitalization of roughly $3 billion.
UiPath Inc., a closely held specialist in “software robots” that mimic humans to complete mundane back-office tasks, is in talks to raise capital at around a $7 billion valuation, said a person familiar with the company. That equates to a sevenfold jump in just 12 months.
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Concerns over huge losses are robbing some consumer-focused tech companies of momentum. Ride-sharing company Lyft Inc.’s shares have slid 19% since its late March IPO, and rival Uber Technologies Inc. recently cut its proposed IPO valuation.
Overall, business-software firms tend to go public at lower market capitalizations, a median of $1.3 billion for those that went public since 2016, according to Dealogic data, compared with $1.6 billion for consumer-focused tech companies.
Zoom was valued more highly relative to its size than Pinterest at its IPO price, with a market capitalization 32 times last year’s sales compared with 17 times for Pinterest. Zoom was slightly profitable last year while Pinterest lost money.
Before they went public, Snap and file-storage firm Dropbox, like Pinterest, were high-profile consumer-focused companies well known to Silicon Valley investors. They drew private capital at high valuations only to stagnate before going public. Dropbox’s valuation has flatlined—it currently trades near its IPO price just over a year ago—in part because the company has struggled to move beyond consumers and sell its software to companies.
Zoom says it has grown because it developed video-focused conferencing software tailored to cloud computing, rather than having to adapt old products like some competitors did.
Read More
- Pinterest, Zoom Shares Surge in Trading Debuts
- Zoom Opens 81% Higher in Trading Debut
- Pinterest Prices IPO at $19 a Share (April 18)
- Lyft Shares Continue to Skid After IPO (April 15)
- Uber Aims for Public Valuation of as Much as $100 Billion (April 10)
- Gold Badges and Boozy Breakfasts: Inside the Frenetic Fight for IPO Listings (April 5)
Chief Executive and founder Eric Yuan came to the U.S. from his native China in 1997 and started as an engineer at videoconferencing service WebEx Communications Inc., which was acquired by Cisco Systems Inc. a decade later. He said in an interview that his expertise in videoconferencing enabled him to spot an opportunity for an alternative service, leading him to start Zoom in 2011.
Santiago Subotovsky, a general partner at venture firm Emergence Capital, was the first institutional investor to plow money into Zoom in 2014. He said consumer-oriented tech companies such as Pinterest get more attention, and that leaves more opportunity for investors focused on technology for businesses.
“You’re not competing with everyone else and their dog” to invest, he said.
Zoom went mostly unnoticed for some time by venture investors who depended on products like WebEx, Microsoft’s Skype, and Google Hangouts for videoconferencing, said Mr. Subotovsky.
He said he used Zoom to do videoconferencing with people abroad—he hails from Argentina and his wife lived in Kenya—and found that it worked better than the other products. When he recommended that his foreign contacts download it, and saw them share Zoom on their own, he decided he wanted to invest, buying in at 87 cents a share.
It wasn’t until March, when the company filed to go public and revealed both fast growth and a solidly profitable bottom line, that the wider market took notice of the company, said Mr. Subotovsky.
The big spike in Zoom shares on their first trading day suggests bankers may have priced them too low for the IPO. But Mr. Yuan said that isn’t a concern, that it is “better to leave money on the table” for investors to profit.
Write to Rolfe Winkler at rolfe.winkler@wsj.com
https://www.wsj.com/articles/zooms-big-ipo-shows-business-tech-companies-are-hot-11555680530
2019-04-21 05:41:00Z
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