No. of Recommendations: 5
Why Did Skype Want To Sell?

Skype had filed for an IPO, was going to do about a billion dollars in revenues, and was on its way to becoming profitable. So why sell? Silver Lake and eBay were both getting impatient and wanted to lock in their profits. Some sources also believe Skype’s revenues had stalled.


https://gigaom.com/2011/05/09/why-microsoft-is-buying-skype-...

Skype at near a billion in revs sold itself for $8.5 billion.

Zoom is a better and enterprise focused Skype.

We can take away that it would have cost Microsoft perhaps $8 billion or more to create Skype
from scratch. Perhaps similar for Zoom.

The video asset is valuable. Zoom is more valuable of an asset. Current lower revenues not w standing you don’t value something just on next years revenues.

Skype May be a sort of floor.

Tinker
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No. of Recommendations: 8
Skype at near a billion in revs sold itself for $8.5 billion.... We can take away that it would have cost Microsoft perhaps $8 billion or more to create Skype.


Tinker, you know better than that. This way they got all of Skype's customers too. If Microsoft just built another Skype (Skype2), it would take them say three years, and maybe cost them $2 billion instead of $8 billion, but at the end of those three years they'd be starting off from scratch with Skype2, while Skype, or whoever bought it, would have had all of Skype's customers at the time, and three years' more customers added on.

It just made more sense for Microsoft, who wouldn't even notice $8 billion, to spring for the extra expense and buy it ready-made.

Saul
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No. of Recommendations: 1
Seems to date the hypothesis is creating a large sentiment of skepticism. It is tossed out there as a basis to justify what the market has done. However, given being oversubscribed by 30x, making reason out of it is not an easy task.

I shall give it some more thought Saul. I have no desire to invest in Zoom at this point in time. Even if $16 billion somehow turned out to be a steal of a deal, market volatility being what it is, it will sell for materially less than this at some point. I am sure we will talk about it much more at that point in time.

This is the best I can come up with in regard to the valuation issue. If Mobileye that is almost existential need for Intel could only go for 32x forward revenues, it seems beyond any reason for an excellent company, but hardly existential need in any manner, is worth 49x or 60x or whatever x forward revenue it is at presently.

I do think Skype is illustrative however of a comparable that is inferior (but was one of a kind at the time for the most part). 8-9x revenues was the take out price. However, the article indicates that there was rumor that Skype revenue growth had hit a wall as well at the time. That is certainly not the case with Zoom at this point.

Shall consider your thoughts and listen to what others have to say. But no, I have no interest in a Zoom investment as things stand now. Just a thought that kicked in as I was walking the dogs this beautiful spring evening.

Tinker
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No. of Recommendations: 24
Oh, I totally agree with you, Tinker, about Zoom:

A. When companies like Zscaler, Okta, Alteryx even Mongo, are selling mostly at about 15 times EV, with Zscaler an outlier at 20 to 25 times, and then you have Zoom at 45 times, that's just ridiculous.

B. Considering, in addition the peripheral nature of the service Zoom sells: --- useful, easy to use, etc, but it's really peripheral, video-conferencing, sitting peripherally way outside of the business software that runs the customer's business, while the other companies mentioned above are central to the actual business itself, it makes the wild valuation seem even crazier.

C. I can't buy all the good companies in the market, and I have to pick ones that I have the most confidence in. I would have probably bought a smallish position in Zoom at 20 times EV, although I would have felt it was expensive, but I would have been pulled in by the growth rate, but the current price seems to me to be just silly (I may be completely wrong, it's happened before).

I'll wait on the sidelines for now and see what happens.

Saul
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No. of Recommendations: 3
Oh, and I forgot:

D. Don't forget the dilution. As the stock price will apply to more and more shares it will make it harder to grow into its outlandish current share price.
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No. of Recommendations: 0
Leaving the question of whether MSFT got $8.5B in value from the transaction ... i.e., was it really worth what they paid?
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No. of Recommendations: 4
Skype was bought by the old Microsoft under Ballmer, and like with their Nokia acquisition, the answer is almost certainly - nay.

Did not Microsoft announce they are shutting down Skype (at least for enterprise)? That would further lean to nay.

Amazing how a change in leadership can so profoundly change the fortune of an entity.

Tinker
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No. of Recommendations: 7
Yes Microsoft is moving away from Skype and integrating video into Teams. Teams was created as a response to Slack. That's how much Microsoft is concerned by Slack.

Team is absolutely terrible.

Skype is terrible too.

Combining them won't make either better.

I really think we're in the middle of the narrative changing from "big companies crushing competition to "little companies chipping away and taking down the titans.

We saw it happen with CPG brands, Beer, Cable companies, Retail, and I think with SaaS growing in popularity, APIs making integrations easier, and broader compatibility allowing people to mix and match we're going to see these brands that are built from the ground up to focus on one enterprise paint point (and seamlessly work with all the other apps businesses use) start to cause some pain to the titans.

I thnk Microsoft is feeling it already. Not with Azure (their cloud platform) but with their enterprise software. Every single one of their enterprise products is middle of the road at best. They had a HUGE advantage from their massive installed customer base that was locked in.

That's going away.

Skype - bad
Outlook - bad
Explorer - bad
Teams - bad
Power BI - never used but I know it's capability is relatively limited.
PPT, Word, Excel, etc are becoming less popular.

So again. We've seen a few examples from our companies already (TWLO/MDB/TTD/ even SHOP) where people got scared a big bully was going to crush them.

I may start looking at those big bullies as more of an opportunity for our companies to win customers from.

Happy Easter or Sunday to all of you.

What an amazing time to be an investor. Love this board
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No. of Recommendations: 3
Austin, what’s so bad about Teams?

In fact, I think it is an excellent response to Slack. We used both Slack and Teams at my company and Teams is better than Slack in some ways. Particularly w document integration. I can see us turning Slack off at some point w all the progress Teams has made.

Now, the video conferencing functionality in Teams is *nowhere* near as good as video conferencing in Zoom. Someone would have to fight w me to get rid of Zoom.

That, or Teams would need to get a lot better. :-). Frankly, if MSFT figures out how to really do video conf in Teams, Teams becomes a killer app. Skype was Ballmer/old MSFT. Teams is Nadella/new MSFT.

I bet MSFT gets there.
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No. of Recommendations: 4
What people really aren’t mentioning is that Zoom’s revenue growth is decelerating. So the “if they keep doubling revenue it’s not so overpriced” theory may turn out to be very optimistic, especially as they get to $500 million run rate. Double to a billion, then 2 billion? That is a very rare feat. Maybe going back to Compaq.

Probably the most anticipated IPO of my investing experience was VMWare. I was looking forward to buying. But it opened so high I didn’t see any room for growth. That turned out to be a good call. This is a heavily discussed IPO. Really why? Twilio is increasing revenue growth rate to 77% while Zoom is now at 108%. How many quarters until they are below 100%? Not many I’d imagine.
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No. of Recommendations: 7
Tinker,

Microsoft tried multiple times to purchase Zoom, but Yuan (ZM CEO) refused due to his terrible experiences with the Webex acquisition by Cisco. Source: https://www.recode.net/2019/4/17/18411011/tech-ipo-market-pi...

As far as the big companies losing ground to startups - I wouldn't say that's entirely the case. MSFT revenues have never been higher. The stock has advanced 50%+ just in the last year, and about a double from start of 2017 (even a company like Cisco has returned 40% in the past year). It may seem like our companies are taking the industry by storm, but it really is just a function of the industry itself massively expanding (as Saul has said, we're riding a tidal wave). When the pie itself is growing at such a rate, there's enough for everyone to take a piece. Our companies are just growing faster than the big companies because they each have a focus on their own niche, so we're reaping the results of that growth.
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No. of Recommendations: 7
What people really aren’t mentioning is that Zoom’s revenue growth is decelerating.
Great point 12x

Here is how I am modelling ZM for now

Quarter ending 2018-04 2018-07 2018-10 2019-01
Revenue $M $60.1 $74.5 $90.1 $105.8
Growth Y/Y % 125% 126% 120% 108%
Growth Q/Q % 18.0% 24.1% 20.9% 17.4%
Gross margin % 81% 83% 81% 82%
Share count (M) 279


Quarter ending 2019-04 2019-07 2019-10 2020-01
Revenue $M $119 $140 $160 $180
Growth Y/Y % 98% 88% 78% 70%
Growth Q/Q % 12.3% 17.8% 14.5% 12.1%
Gross margin % 82% 82% 82% 82%
Share count (M) 289 299 309 319


Quarter ending 2020-04 2020-07 2020-10 2021-01
Revenue $M $198 $229 $258 $285
Growth Y/Y % 67% 64% 61% 59%
Growth Q/Q % 10.3% 15.7% 12.4% 10.7%
Gross margin % 82% 82% 82% 82%
Share count (M) 330 340 351 362



Quarter ending 2021-04 2021-07 2021-10 2022-01
Revenue $M $311 $355 $394 $430
Growth Y/Y % 57% 55% 53% 51%
Growth Q/Q % 8.9% 14.2% 10.9% 9.3%
Gross margin % 82% 82% 82% 82%
Share count (M) 373 385 396 408


So at the end of 3 yrs from now, at share count of 408M and TTM revenue of $1,490M, ZM may still be growing at 50%+ rate.
HOWEVER, if you give it P/S of 20 at that time, you get per share price of $75 which is $4 more than $71 today.

I rather put money in 0.1% savings account today!! At-least I dont have to worry about Zoom bubble bursting :-)
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