Size of the text
Zoom’s all-stock acquisition of call-center software provider Five9 suggests near-term profit dilution.
Dreamstime
Video Communications using Zoom
Investors are evaluating the business’s $14.7 billion all-stock agreement to acquire call-center software company, and the stock is trading lower Monday.
Five9.
Zoom (ticker: ZM) will issue 0.5533 additional shares for every Five9 (FIVN) share currently outstanding under the terms of the agreements. The sale valued Five9 at $200.28 per share at Friday’s close, while a drop in Zoom shares on Monday morning reduced the transaction’s value by around $8 per Five9 share.
On Monday, Zoom shares fell 4.1 percent to $347.55. The transaction’s all-stock nature implies some near-term profit dilution, and the business hasn’t released any information on financial synergies or other earnings consequences. While the deal should help the company’s nascent Zoom Phone cloud-based phone service grow, there are no obvious synergies with the company’s core video-conferencing business. The acquisition significantly broadens Zoom’s business, bringing a key participant in the call-center-as-a-service area to the company’s web-conferencing and unified communications as a service efforts. Zoom claimed the transaction adds a $24 billion addressable market to a current total addressable market of $62 billion in a presentation to analysts on Monday morning. In a research note, Citi analyst Tyler Radke sees the merger as a “potential positive” for Zoom, with Five9 acting as a catalyst for the Zoom Phone cloud-based phone business. However, Radke warns that the transaction could dilute Zoom’s margins, and that the valuation is “quite rich.” He also claims that the regulatory risk is “higher than usual,” citing Zoom’s regulatory scrutiny during the epidemic for perceived privacy and security issues. On Zoom shares, Radke keeps his Neutral rating and $380 price target.
Subscribe to our newsletter Review & Sneak Peek Every weekday evening, we summarize the day’s most important market news and explain what’s likely to matter the next day.
Given the fragmented market for call-center software, Morgan Stanley analyst Meta Marshall is less concerned about regulatory risk, and she believes the purchase premium is appropriate. Marshall is optimistic about the deal, noting in a research note that it gives Zoom “an opportunity to engage in rapid digital-transformation trends.” However, she points out that the deal will dilute earnings by around 11%, and the company has provided no information on potential cost savings. Her Equal Weight rating and $360 target price remain unchanged. In a research note, Needham analyst Ryan Koontz writes that while he loves the proposed deal’s long-term strategic logic, he is concerned about the transaction’s short- and medium-term implications due to the expected earnings dilution. Given that Five9 doesn’t fully address the demands of the company’s significant small-business market, he sees “little near-term customer or product synergy.” Zoom shares remain in Koontz’s Hold rating. Investors are becoming more interested in some Five9 competitors as a result of the purchase, with shares of
Nice
(NICE) increased by 1.9 percent, and
LivePerson
The stock of (LPSN) is up 0.7 percent. However, Zoom is a competitor.
RingCentral
(RNG) has lost 9.5 percent of its value, while
Vonage Holdings is a company that owns Vonage.
The stock of (VG) is down 2.5 percent, and
8×8
The stock (EGHT) is down 1.2 percent. Eric J. Savitz can be reached at eric.savitz@barrons.com./n
Read More
