The tech firm Zoom which is designed exclusively for hosting webinars, teaching online courses, and conducting online training, video demonstrations, virtual meetings and video conference; and represents an easy to use online video conferencing and meeting software that integrates video conferencing, simple online meetings, and group messaging into a single cloud-based platform. It is founded by a former vice president of engineering at Cisco, Eric Yuan, back in 2011, Zoom soon lived up to the expectations that Yuan had for the project as the company turned out to have a rather profitable business strategy.
Representing a videoconferencing startup, Zoom earned a status of a tech unicorn, currently valued at 1 billion dollars and with an IPO already filed to go to the public on Nasdaq market.
The S-1 filling submitted by Zoom has been already made public, which means that investors may soon see Zoom’s IPO entering the market within a rising trend of tech unicorn IPOs that have also marked the last year of 2018.
More IPOs are arriving in 2019, on the head with Lyft, Uber, Airbnb, Pinterest and Palantir, while Zoom is expected to go live with the public offering at the beginning of Q2 2019.
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What to Expect from the Upcoming Zoom IPO?
According to the S-1 filling submitted by the company, there are 242,993,239 shares issued under class B common stock where each share is priced at 0.001$ (par value per share) and class A common stock had authorized 320,000,000 shares while no shares are issued, also stating the price of 0.001$ par value per share.
The company’s IPO is said to be estimated at 1 billion dollars, which makes Zoom a tech unicorn, while it is expected to see the IPO out already in April which could be days or weeks away at the time of this writing.
The company appears to have a healthy growth rate as it reported 151.5 million for 2018 in oppose to 60.8 million in 2017, while mitigating risk factors and lowering losses from 14 million dollars in 2017 to 7.5 million in 2018.
Goldman Sachs and JP Morgan are leading Zoom IPO, while the exact date of the issuance is yet to be officially confirmed.
What is Zoom?
Zoom is a cloud-based service which provides simple online meetings, content sharing, and video conferencing capability. You do not need a Zoom account to attend a Zoom meeting, only the host is required to have an account to enable the scheduling of meetings. All staff and students at USQ are entitled to a Zoom account.
One of the Most Anticipated Tech IPOs of the Year: Zoom IPO
According to the CNBC; unlike most tech companies preparing to go public, video-conferencing startup Zoom is profitable. One key driver of Zoom’s profitability: a large engineering team in China, where average tech salary is relatively lower than in the U.S.
Zoom’s large R&D presence in China, which is likely made easier by CEO Eric Yuan’s Chinese background, is turning out to be a major cost saver for the video-conference software maker — and reflects an increasingly popular strategy among fast-growth tech companies.
Zoom disclosed in its IPO prospectus last week that most of its product development personnel are based in China. Zoom employs over 500 people across multiple R&D centers in China, which accounts for roughly 30 percent of its total workforce and 70 percent of its non-US-based employees, according to the prospectus.
“Our product development team is largely based in China, where personnel costs are less expensive than in many other jurisdictions,” Zoom wrote in its filing. “If we had to relocate our product development team from China to another jurisdiction, we could experience, among other things, higher operating expenses, which would adversely impact our operating margins and harm our business.”
In the fiscal year that ended Jan. 31, Zoom spent $33 million on R&D, or just 10 percent of total revenue. That’s a much smaller share than other business software makers, and less than half the median R&D percentage of its peer group, according to Redpoint Ventures’ Tomasz Tunguz. For example, Atlassian’s development cost accounted for over 40 percent of its revenue, while smaller companies like Zendesk and Hubspot both spent over 20 percent of their revenues on R&D.
That helped Zoom record a net income of $7.6 million last year, even after spending more than half of its revenue on sales and marketing, like many young business software companies. Its revenue more than doubled to $330.5 million in the same period.
“One key driver of profitability is labor-market arbitrage,” Tunguz wrote in a blog post about Zoom’s financials.
Zoom’s representative didn’t immediately respond to a request for comment.
‘Labor-market arbitrage’
Tunguz told CNBC in an email that labor arbitrage, or moving jobs to inexpensive regions, is a growing trend among tech companies. Many of his portfolio companies are now looking for talent everywhere and are more willing to hire remote engineers outside of Silicon Valley because of the cost advantage.
According to Glassdoor, entry level software engineers in China make roughly $34,350 per year on average, a third of what their U.S. counterpart would be making ($110,000 per year in San Jose).
Zuora CEO Tien Tzuo said the salary difference between Chinese and American developers has narrowed in recent years, as competition for technical talent in China has significantly grown with the rise of local tech giants, like Alibaba and Tencent. Still, he said hiring remote engineers is an important part of his company’s strategy, and he now runs five international development sites for Zuora.
“Any company that’s not looking at distributed engineering organizations is missing out,” Tzuo said.
In Zoom’s case, having a CEO of Chinese descent seems to help recruiting in the country. Zoom wrote in its prospectus that Yuan’s role is “critical” to the management of its engineering and general operations in China, as he spent most of his early life in China, and earned his bachelor’s and master’s degrees there.
Despite its cost benefits, Zoom’s presence in China could also pose a security risk going forward. Zoom mostly deals with business customers, who are much more sensitive about data privacy, and having most of its development team based in China could expose the company to increased scrutiny, the filing said.
“We have a high concentration of research and development personnel in China, which could expose us to market scrutiny regarding the integrity of our solution or data security features,” Zoom wrote in its filing.
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