Zoom Video Communications came out strong in its initial public offering on Thursday as shares of the company’s stock immediately took off. The initial asking price was $36 per share but by noon, the stock was as high as $65 per share.
Zoom had initially planned on an asking price of between $28 to $32 per share but due to increased demand, the company revised its asking price. Even still, the company seems to have underestimated investor interest. When the market closed, the valuation was still sitting at $62 per share, which is a 72 percent gain.
Pinterest also had its highly anticipated initial public offering on Thursday. Its shares rose an impressive 25 percent but the company was mostly overshadowed by Zoom.
Investors bank on Zoom’s profitability and strong financials
This is surprising in many ways since Pinterest is a household name for most people whereas Zoom isn’t as well-known. However, Zoom had several things working its favor.
One thing that likely caught the attention of investors is that Zoom was profitable before it filed for its IPO. Investing in a new company is always a risk but when the company can show its already profitable, this goes a long way toward easing investors’ minds.
Prior to its initial public offering, Pinterest actually lost $63 million in 2018. By comparison, Zoom is not only profitable but growing at a very fast pace. In January, the company posted revenue of $330 million which is up 118 percent from a year earlier. The company increased its revenue by 149 percent a year before that.
Pinterest largely makes its money from selling ads whereas Zoom operates a SaaS model. This means they generate a high level of recurring revenue and don’t have many one-time sales.
Will the momentum last?
Things are looking good for Zoom but some investors may be wondering if the momentum will last. Company stock is often volatile in the initial months after its IPO and there is no guarantee Zoom’s shares won’t fall.
Plus, Zoom operates in a competitive market and has rivals like Skype and Google Hangouts. Zoom will need to continue to prove that it can maintain its growth and strong valuation in the coming months.