Zoom Video Communications CEO Eric Yuan said he’s mystified about why shares in his video conferencing company soared 76% in their first day of trading Thursday after an initial public offering.
“I have no idea why,” Yuan told Coins2Day.
It’s likely, however, that Zoom’s profitability stood out to Wall Street investors, who are accustomed to tech IPOs by mostly money-losing companies. Dropbox, Lyft, and Eventbrite are just some of the most recent examples. Instead of focusing on profits, they spend heavily on sales and marketing, hiring, and product development in order to rapidly grow their business.
Zoom, whose shares finished at $62, raised nearly $350 million through its IPO, which coincided with the IPO of online pinboard Pinterest, one of the more typical money-losers. Pinterest shares also soared in their first day of trading, although most modestly, with a gain of 28% to $24.40.
Zoom had a $7.6 million profit on $330.5 million in sales during its fiscal 2019, according to its regulatory filings. In 2018, Zoom lost $3.8 million on $151.5 million in revenue.
Asked whether Zoom had left money on the table by pricing its shares too low, Yuan said that Wall Street’s reaction was “out of our control.” Having said that, he added that Zoom considers investors as its partners, and he “always wants the partner to make money as well.”
Although investors may cheer Zoom’s profits, they shouldn’t necessarily count on that now that it’s a public company. Yuan said that Zoom is going to “double down, triple down” on growth, which likely means that it may revert back to being a money loser.
Zoom will need to spend cash on hiring, technology, and salespeople to fend off tough competitors like Cisco, where Yuan was once a vice president of engineering. Microsoft and Google are also rivals.
But, Yuan believes that going public will help give Zoom the credibility it needs to court big companies and international businesses as customers, which it will need to compete with larger enterprise technology businesses.
While Yuan said that his company’s top priority would be growth, he still emphasizes that it won’t spend money frivolously.
Zoom plans to target the hiring of recent computer science graduates in cities like Kansas City and Sacramento, where salaries aren’t as high as in Silicon Valley, where it’s based. Currently, 500 of the company’s 1,702 workers are in China, according to its regulatory filings, leaving unsaid that wages there are lower.
But Zoom isn’t snubbing Silicon Valley. Yuan said that the company’s core engineers and research and development team is based in California’s technology hub.
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In an example of how the 8-year-old Zoom tried to save money as a private startup, Yuan said it did not have a marketing team until 2015. Instead, the company relied on word-of-mouth to generate sales.
“Everything we did was just frugal,” Yuan said. The company doesn’t “just spend money to create a buzz.”
