Zoom raised $ 1.75 billion. Morgan Stanley says the street is too bearish.

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Focus on video communications

The shares are on the mend after the company offered an offer of 5.15 million shares at $ 340 each, generating $ 1.75 billion in proceeds before expenses. This is a little more than the $ 1.5 billion initially targeted.

The offering will nearly double the company’s holdings of cash and marketable securities, which stood at $ 1.87 billion at the end of the October quarter. Zoom (symbol: ZM) has no long-term debt.

Stifel analyst Tom Roderick says the deal adds financial flexibility, but believes the total would have to be higher for the company to achieve substantial growth through acquisitions. “While [the company now has] a sizable war chest, money alone does not necessarily put potential targets like

RingCentral

or

Twilio

on the table without a huge stock component in such a deal, ”he wrote. “As Zoom expands its global scale, a 10-figure war chest will also be beneficial for building aggressive infrastructure, if needed.”

Roderick noted that the company revealed on Tuesday that it has reached one million users for its cloud-based Zoom Phone service.

“Zoom has made remarkable progress in a short period of time with Zoom Phone,” he writes, noting that the service is only two years old. “Going forward, we expect Zoom to focus on expanding its relationship with current video customers drawn from the pandemic and creating up-selling opportunities through the growing product line. of the society.” Roderick retained a Hold rating on the stock, with a target of $ 450 for the price.

Meanwhile, Morgan Stanley analyst Meta Marshall reiterated his equal weight rating and price target of $ 390. but said she believed investors had become too pessimistic about the post-Covid outlook.

“While we were once cautious, valuation was ahead of [the long-term] opportunity, almost 40% of the highs, we think the market has probably gotten a little too negative, ”Marshall wrote. She said the data on Zoom Phone shows how quickly the platform can add apps, a factor she says investors seem to have missed.

Marshall said she expected Zoom to use the money he raised to expand the services offered by the platform.

“We will note that the company has not said anything publicly about potential mergers and acquisitions, but that expanding the platform, similar to what it did with Phone, makes sense to monetize its installed base.” , she wrote. “We continue to believe that the 400 to 450 million business customers are the most lucrative of potential customers, with application extensions in this area being the most relevant to us.”

The first beneficiary of the work-from-home trend, Zoom’s stock rose more than 760% from the end of 2019 to the intraday peak at $ 588.84 on October 19. But it’s all been a big sell off since, dropping over 40% through Tuesday’s close. Zoom’s shares rose 5.5% to $ 376.44 as of Wednesday afternoon’s end.

Write to Eric J. Savitz at [email protected]