Zoom (ZM), Five9 Mutually Terminate $14.7B Acquisition Deal
Zoom Video's (ZM) plans to diversify revenue sources beyond its video conferencing business suffer a blow as it and Five9 cancel $14.7 billion deal.
Zoom Video’s ZM $14.7 billion deal to buy cloud-based call center operator Five9 Inc FIVN has been mutually terminated, dealing a blow to Zoom's plan to expand its offerings following its pandemic boom.
The all-stock deal was expected to enable Zoom to tap into the lucrative Contact Center as a Service (CCaaS) market, which is expected to witness a CAGR of 15.7% from 2021 to 2028, per a Grand View research report.
Per the deal terms announced in July, Five9 shareholders would have received 0.5533 Zoom share for every Five9 share. The terms implied a 12.8% premium over Five9's market price and valued the company at $14.7 billion.
The development comes weeks after the proxy advisory firm Institutional Shareholder Service recommended that Five9 shareholders vote against the acquisition over concerns about Zoom’s slowing growth. For the fiscal third quarter, Zoom guides revenues between $1.015 billion and $1.020 billion, indicating 31% year-over-year growth. Markedly, revenues increased 54% year over year in the Jul 31 ended fiscal second quarter compared with an increase of 191% year over year in the previous quarter.
The proposed deal between the companies also attracted government scrutiny. The Department of Justice had asked the Federal Communications Commission (FCC) to refer the deal to an interagency committee known as Team Telecom to investigate whether Zoom's ties to China could jeopardize national security or law enforcement interests.
Zoom is based in San Jose, CA. Though its founder and CEO Eric Yuan, a native of China, is a citizen of the United States, the company has a significant research and development hub in China.
Besides the FCC probe, Zoom also faces investigations by the Securities and Exchange Commission and the Attorney's offices in New York and California in the United States regarding security and privacy issues.
Share prices of both Zoom and Five9 barely budged since the development seemed evident. Zoom and Five9, which had a product partnership prior to the acquisition agreement, said they will maintain support for the integrations.
Zoom Video Communications, Inc. Price and Consensus
Zoom’s Efforts to Diversify its Offerings to Sustain Growth
Zoom has been looking for revenue sources beyond its core video conferencing business, which faces stiff competition from rivals Google G Suite, Microsoft MSFT Teams, Cisco Systems’ Webex and Salesforce's Slack.
Although Five9 presented an attractive means to bring to Zoom’s customers an integrated contact center offering, the latter is set to launch Zoom Video Engagement Center, its cloud-based contact center solution, in early 2022 that will connect organizations with their customers in new ways.
Besides, the company announced at Zoomtopia Partner Connect 2021 that its reseller partners will now have the opportunity to sell Zoom Phone Bring Your Own Carrier (BYOC) licenses through a brand-new partner program geared toward the reseller community.
Zoom reported 2 million seats for the Zoom Phone cloud-based phone service in the fiscal second quarter, up from 1.5 million in the previous quarter.
The company is also set to launch Zoom Whiteboard later this year that will allow seamless and asynchronous collaboration across a wide range of devices. Zoom is teaming up with Facebook FB to build a Whiteboard integration for the Oculus Horizons Workrooms virtual environments.
We believe Zoom’s ability to generate strong cash flows will enable it to make further investments in product development and acquisitions. This Zacks Rank #3 (Hold) company has cash and cash equivalents (including marketable securities) worth $5.1 billion as of Jul 31, 2021 compared with $4.7 billion as of Apr 30, 2021. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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