Two technology IPOs priced late on Wednesday. They are — to use a delightful British expression — as different as chalk and cheese.
Pinterest is the fairly typical unicorn that is growing fast, loses money and has big dreams. Pinterest says its mission is to “bring everyone the inspiration to create a life they love”.
Zoom Video Communications’ mission statement is less dreamy: “To make video communications frictionless.”
Zoom is not exactly curing cancer, but it has a product that people like, which is notable for software aimed at businesses. It’s also growing fast, and it turns a profit.
And to my surprise, IPO investors embraced Zoom even more warmly than they did Pinterest. Zoom will start life as a public company with a market value of more than $9bn, which excludes the value of shares held by employees and others. Pinterest is around $10bn. For the smaller Zoom, that means investors were willing to pay about 28 times the company’s annual sales, about double the comparable multiple for Pinterest.
The pair offers an investment choice between future promise and current execution. Based on what Pinterest could become, its potential market is much bigger than Zoom’s. But Zoom is the surer bet.
Opportunity vs. reality
What people do on Pinterest is inherently commercial — like planning weddings and figuring out living room renovations — which is an ideal set-up for the company to rake in money facilitating e-commerce transactions. That’s opportunity and not reality, though.
Right now, Pinterest sells advertising, and its average ad revenue for each Pinterest user is paltry compared with those of digital ad giants such as Google and Facebook, particularly for international users, who make up a large majority of Pinterest’s audience. The company is also awash in red ink like most tech companies going public in the US. For every dollar in revenue Pinterest generated last year, it burned 11 cents in cash.
Zoom brought in 7 cents in cash for each dollar in sales. Its management team is admired in Silicon Valley, revenue doubled last year, and its pre-IPO investors — unlike Pinterest’s — made a mint in the IPO.
But it’s hard to imagine Zoom reaching the technology big league. The market for video conferencing is healthy but not titanic, and there’s competition from rich companies that offer video conferencing as an add-on for existing customers. Zoom might be better off folding into a business software supermarket like Microsoft Corp. or Oracle Corp. (The former tried to buy Zoom multiple times, Recode reported on Wednesday.)
It’s unfair, of course, to compare the companies or pit them against each other. They will thrive or falter on their own merits. It’s also tough to predict whether the IPO appeal of realistic Zoom tells us much about the demand for Uber Technologies Inc. and other elite unicorns whose value relies on imagining what they might be in a far-off future.
One fun fact: Morgan Stanley is the banker leading the IPOs of both Zoom and Uber. The same firm that pitched investors on pragmatism this week will be asking investors to bet on wild dreams the next time around.