Canada Markets closed

Why Zoom CEO says leaving money on the table is a good idea, stock closed up 72% in its debut

Brian Sozzi
Editor-at-Large

Zoom Video Communications (ZM) founder and CEO Eric Yuan should head over to Uber’s headquarters and hold a last minute tutorial on how to successfully go public. That is if Uber wants to avoid the same fate as money-losing ride-hailing rival Lyft.

“When we started our company, every time we did funding rounds we left money on the table because those are our business partners. When you are trying to win, you also want your partners to win. If you lose, you lose more than your partner. So our business philosophy is always to care about our partners,” Yuan told Yahoo Finance.

“To leave money on the table is always a good thing,” Yuan added.

Well in that case, Zoom’s IPO was a good thing for all parties involved. Zoom’s stock skyrocketed 72% on its April 18 debut on the Nasdaq Composite. At $62 a share, the stock closed light years away from where it priced at $36.

In effect, Yuan left a nice chunk of change on the table. An argument could be made that Yuan didn’t fully anticipate the rabid demand for a piece of a company that has carved out a strong niche in the video conferencing space.

The flip side of that is Lyft (LYFT), which is now being hit with lawsuits that it overhyped its late March IPO. Lyft’s stock is down about 18% from its IPO day closing price amid concerns about the company’s losses.

Why Zoom soared in its debut

Besides Yuan being held in high regard by his early investors and on Wall Street, the fact is Zoom’s business just makes sense — and it makes money. And it could make gobs more money in the years ahead in the push by workplaces to connect their employees globally faster to drive greater productivity.

Zoom generates about 30% of its annual sales from some 341 large companies. These companies pay Zoom annual fees to access its video conferencing technology. The long-term subscription model is something that probably lured in investors to Zoom — investors love predictable revenue streams, just ask those that hold Amazon (AMZN) and Netflix (NFLX) shares.

Zoom’s sales in 2019 were more than five times levels seen in 2017, and the company was slightly profitable. The company also enters public company waters with a relatively clean balance sheet —minimal debt and about $64 million in cash, pre-iPO.

Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi

Read more

Pinterest and Zoom IPOs: Here's how to avoid another Lyft disaster

Why Netflix stock deserves to be shredded after its latest earnings report

Snap stock may be 125% overvalued and due for a crash

Lyft's stock price crash has short sellers salivating