What the Zoom-Five9 Deal Says About the Nasdaq's Future

Do companies think the bull market has run its course?

| More on:
Family using Zoom to call doctor

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The US stock market has been on edge for the past week, and on Monday, stocks pulled back sharply. The Nasdaq Composite (NASDAQINDEX: ^IXIC) actually held up well, falling a bit more than 1% as of noon EDT. Several other major market indexes saw larger declines. Merger and acquisition activity has increased dramatically in the past year, and on Monday, investors got interesting news from video collaboration specialist Zoom Video Communications (NASDAQ: ZM). Shareholders in Five9 (NASDAQ: FIVN) are quite happy that Zoom has made an acquisition bid for the cloud-based contact centre specialist. However, some of the details have to make investors wonder what the deal says more broadly about the Nasdaq and its future course.
Person at white desk talking to 12 people on a Zoom call on monitor.

Image source: Zoom Video Communications.

Zoom makes the call for growth

Zoom's stock was down more than 4% after it announced its purchase of Five9. Five9 shares rose more than 5%. Zoom's bid for the cloud-based call centre specialist values Five9 at about $14.7 billion. Under the terms of the deal, Zoom will give Five9 shareholders 0.5533 shares of Zoom for every Five9 share they own. The companies expect the deal to close in the first half of 2022. The two companies explained their reasons for the move. Zoom sees the acquisition helping to boost the value proposition from its existing video collaboration platform, identifying the call centre market as a $24 billion opportunity to add to its existing addressable market. As Zoom CEO Eric Yuan explained, "Enterprises communicate with their customers primarily through the contact centre, and we believe this acquisition creates a leading customer engagement platform that will help redefine how companies of all sizes connect with their customers." Meanwhile, Five9 CEO Rowan Trollope sees the move helping his company's customers get better access to Zoom features. In particular, Trollope mentioned the Zoom Phone offering, which has been a key direction in which Zoom hopes to expand the scope of its overall business.

Zoom keeps its cash

Plenty of investors are debating whether the acquisition makes sense from a business standpoint. What stood out to me, though, was the way in which Zoom made the purchase. Zoom finished the first quarter of its current fiscal year with an extremely healthy balance sheet. The company reported $1.56 billion in cash and equivalents, as well as another $3.13 billion in short-term investments. That's nearly $5 billion that many anticipated Zoom using to make a strategic acquisition similar to this one. However, by doing the all-stock deal, Zoom implied that it thinks its stock price is high enough that an all-stock deal makes more sense. That's not an unreasonable position for the company to take, but it did seem to make Zoom shareholders take pause. After reaching a high of $550 per share last October, the stock briefly dropped below $300 earlier this year, and the deal just seemed to put a stop to more bullish sentiment that had briefly sent Zoom's stock price back to $400.

Hoping for the best

Many are still optimistic about Zoom's long-term opportunities. The company has worked hard to go beyond its core video platform, and positive cash flow will give Zoom plenty of chances to make further acquisitions down the road. Nevertheless, Zoom didn't give a vote of confidence in its stock price, even at greatly depressed levels. If other Nasdaq stocks are seen as equally overvalued, then it could create the negative sentiment that could lead to a long-awaited downturn for the index and many other high-profile growth stocks in the market.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the 'five best ASX stocks' for investors to buy right now. We believe these stocks are trading at attractive prices and Scott thinks they could be great buys right now...

See The 5 Stocks *Returns as of 9 January 2025

Dan Caplinger owns shares of Zoom Video Communications. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Zoom Video Communications and Five9. The Motley Fool Australia has recommended Zoom Video Communications. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on International Stock News

Confused African-American girls in casual clothing standing outdoors and comparing information on smartphones.
International Stock News

Better artificial intelligence (AI) stock for 2025: Nvidia vs. Microsoft

Nvidia has significantly outperformed Microsoft stock over the past couple of years.

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
International Stock News

3 subtle investing mistakes I won't repeat in 2025 and beyond

You can avoid the mistakes I made...

Read more »

A bemused woman tries to choose between two slices of cake she holds on two plates.
International Stock News

What's the better long-term investment: The Nasdaq-100 or the top S&P 500 growth stocks?

Investing in top growth stocks can be a great way for investors to grow their portfolios in the long run.

Read more »

man looking happy and excited as he looks at his mobile phone
International Stock News

Jensen Huang just delivered incredible news for Nvidia stock investors

At the CES 2025 technology conference, CEO Jensen Huang highlighted a new multitrillion-dollar opportunity.

Read more »

Happy young couple doing road trip in tropical city.
International Stock News

Why electric vehicle stocks like Tesla just rallied

Wondering what caused Tesla and these other EV shares to pop?

Read more »

a woman with her hands over her face splits her fingers over one eye so she can peep through them.
International Stock News

Will Nvidia stock fall below $100 in 2025?

A worrisome precedent has been set by market leaders of game-changing technologies and innovations.

Read more »

An elephant standing on a chair looking down at a mouse
International Stock News

Should you buy shares in the largest company in the world?

Today, about half of the 20 biggest companies by market value are in the technology industry.

Read more »

a couple clink champagne glasses on board a private aircraft with gourmet food plates set in front of them. They are wearing designer clothes and looking wealthy.
International Stock News

Tesla stock vs Amazon: Billionaires are buying one and selling the other

Several Wall Street billionaires have been making some moves!

Read more »