Zoom – Zoom Deal for Five9 Is a ‘Game Changer,’ Analyst Says
The Street is missing just how significant it is that
Zoom Video Communications
is buying the call center software company
contends (BofA) Global Research analyst Daniel Bartus.
In a note Monday, Bartus declared the deal to be a “game changer” for Zoom (ticker: ZM), reiterating his Buy rating and $480 price target, and declaring the stock to be a “top pick.”
The Street’s initial reaction to the acquisition was lukewarm at best. The company gave few details on how the $14.7 billion all-stock transaction will affect reported financial results, but the deal is expected to dilute earnings. And it isn’t at all clear whether there is any synergy between the core videoconferencing business and cell center software.
But Bartus wrote that Zoom has emerged as a leader in the unified communications sector, “clearly differentiating” with quality video and “gaining traction” with Zoom Phone, which has 1.5 million users. And he pointed out that Five9 (FIVN) is a leader in the contact center as a service sector.
He sees a trend of bundling the two segments together, and wrote that “the long term value of integrating both technologies is attractive.” Together, he said, Zoom and Five9 would be the strongest combination in the market, creating new competitive risks for rivals like
(RNG) and 8×8 (EGHT).
“We believe the combination will ultimately be stronger than the sum of its parts,” he wrote. “Zoom’s reach, resources, and 500,000 customers provide a solid foundation for Five9 cross-selling. Five9’s channel relationships and ecosystem of partners should also help Zoom.”
Bartus said he sees a “reasonable scenario” where the combined company generated $10 billion in sales in calendar 2024, with $3.6 billion in earnings before interest, taxes, depreciation and amortization, or Ebitda. That implies an enterprise value to sales multiple on 2024 sales of about 12 times, with projected growth of 34% in 2023 and 27 in 2024.
On a growth adjusted basis, he noted that the stock’s valuation compares favorably to other large cap software-as-a-service companies like Adobe, ServiceNow, Workday,
On Monday, Zoom shares were up 3.6%, to $371.99.
Write to Eric J. Savitz at [email protected]