These days, someone proposing a remote meeting or virtual happy hour is very likely to say, “Let’s Zoom.” While the coronavirus-induced lockdown has made Zoom Video Communications Inc. synonymous with video calls, it has also created a broader market, and whet investor appetite for stocks well placed to profit from the move to working from home.
Pexip Holding ASA has satisfied some of that demand with Europe’s biggest technology initial public offering this year. The Thursday listing valued the Oslo-based company at some 9 billion Norwegian krone ($880 million) – not shabby for a business with just 370 million krone in revenue last year.
The company is trading at a discount to its bigger, better-known competitor. If Pexip grows at the same pace for the rest of this year as it did in the first quarter, and profitability is consistent with previous years, then the listing gives it an enterprise value of more than 70 times forward Ebitda (a measure of a company’s operating performance). Zoom is considerably pricier, with a valuation on the same basis of more than 370 times.
If this were primarily a classic consumer-facing market, then investors would have to weigh up the prospect of a winner-takes-all battle. After all, that’s how things have tended to pan out for online services: Alphabet Inc.’s Google took search, Facebook Inc. dominates social media, Microsoft Corp.’s LinkedIn has professional contacts and so on. And Zoom has already entered the lexicon as a verb in much the same way as google or tweet.
But the video-conferencing business model differs from those advertising-driven offerings: Most of the money is to be made from companies paying for premium services. Chief technology officers care less about what’s in vogue than about the best solution for their needs from both a technical and cost perspective. So while Pexip’s valuation is still punchy, there is room for multiple players. Concentrating on a business-to-business solution is far more likely to build a sustainable concern built on rational purchases — Pexip already boasts customers such as Vodafone Group Plc, General Electric Co. and Accenture Plc and annual recurring revenue from multi-year contracts jumped 50% in the first quarter. With 1.1 billion krone in IPO proceeds, it now has capital to accelerate that pace of growth.
There’s significant demand to capitalize on the work-from-home trend. Shares in TeamViewer AG, a German maker of software that facilitates remote working, have climbed 33% this year, while the benchmark DAX Index has fallen 22%. Even at enterprise software giant SAP SE, Chief Executive Officer Christian Klein told Bloomberg News this week he’d love to have a video-conferencing solution in the company’s portfolio right now.
Pexip must do a lot to justify its valuation, which prices in a huge increase in earnings over the next few years. It may be telling that many of its investors are using the offering as an opportunity to sell their stakes: The company will have a free float of some 80% of the share capital. Perhaps they’re sensing an opportunity to make hay while the sun shines. But if work from home is here to stay, then there will likely be plenty of seats around the (dining room) table. – Bloomberg
News media is in a crisis & only you can fix it
You are reading this because you value good, intelligent and objective journalism. We thank you for your time and your trust.
You also know that the news media is facing an unprecedented crisis. It is likely that you are also hearing of the brutal layoffs and pay-cuts hitting the industry. There are many reasons why the media’s economics is broken. But a big one is that good people are not yet paying enough for good journalism.
We have a newsroom filled with talented young reporters. We also have the country’s most robust editing and fact-checking team, finest news photographers and video professionals. We are building India’s most ambitious and energetic news platform. And we aren’t even three yet.
At ThePrint, we invest in quality journalists. We pay them fairly and on time even in this difficult period. As you may have noticed, we do not flinch from spending whatever it takes to make sure our reporters reach where the story is. Our stellar coronavirus coverage is a good example. You can check some of it here.
This comes with a sizable cost. For us to continue bringing quality journalism, we need readers like you to pay for it. Because the advertising market is broken too.
If you think we deserve your support, do join us in this endeavour to strengthen fair, free, courageous, and questioning journalism, please click on the link below. Your support will define our journalism, and ThePrint’s future. It will take just a few seconds of your time.