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Recommendation: SELL ZOOM VIDEO Business Rating: 6 COMMUNICATIONS, INC. (Ticker: ZM) Security Rating: 3

BUSINESS RATING SECURITY RATING

SELL BUY NEGATIVE POSITIVE d POTENTIAL FOR RETURN RISK

LIMITED SIGNIFICANT LOW HIGH d Industry: Software Sector: Technology Stock Price: $82.62 (09/23/19) Jarvis Rank: 964 (09/21/19)

(Data as of 09/23/19 unless specified) Fwd (TTM) $744.8M Enterprise Value: $21.9B Market Cap: $22.6B Revenue: ($463.7M) 29.40x Revenue Growth Fwd (TTM) EV/Sales: TTM Gross Margin: 80.9% +118.2% (47.10x) (YoY): Share Performance TTM Operating +33.3% 1.8% RSI: 41.42 since listing: Margin: Dollar based net 52 week high $107.34 52 week low $59.94 >130.0% expansion rate Insider Transactions: Insiders have bought or acquired 7.1mn shares since the IPO

 WHY WE RATE ZOOM VIDEO (ZM) A SELL • Zoom is one of the most richly valued stocks traded, with a Grab-and-Go Fwd EV/Sales multiple of 29.40x. While their growth has been THESIS exceptional, the market has already priced it in with high premiums An investment in Zoom is a play on the growing market for cloud-based • ZM shares fell after the latest earnings release despite the meeting solutions backed by the company beating estimates and raising guidance. The market secular trend of businesses likely expects near-perfect results, and downside risks may be undergoing digital transformation. too high Zoom is cloud-native collaboration • The lock-up period for IPO subscribers and Class B platform offering video meetings, conference room solutions, and shareholders to sell their shares is yet to pass, which adds cloud phone calling. Continued additional downside risks as the price has increased product differentiation through significantly and shareholders may wish to exit their positions innovation & strategic partnerships • Microsoft Teams presents a long-term threat, as it’s bundled is key to its future growth. with Office 365 Premium, making it a free solution instantly available to Microsoft’s vast pool of customers; it is also the company’s fastest-growing app • Although an excellent video conferencing platform and business, ZM’s current valuation indicates a greater downside than upside; we recommend a SELL

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 SUMMARY OF THE BUSINESS AND THE INDUSTRY ◼ Business1 Zoom Video Communications provides a video-first  communications platform that connects people through Grab-and-Go video, voice, chat, and content sharing. It enables face- TALKING POINTS to-face video experiences for up to 1,000 users in a single meeting across separate devices and geographies. WHAT WE LIKE WHAT WE DON’T LIKE

The platform features a cloud-native architecture that has been optimized for dynamically processing and Excellent product Expensive valuation delivering high-quality video and audio with scalability and service quality multiples and seamless integration. Zoom’s services are sold as Viral marketing and Lack of a comprehensive separate products or catered solutions for specific and collaborative industries such as healthcare, education, government, sales approach software ecosystem and finance. Key products include: Profitability and Enterprise-level competition will Zoom Meetings & Chat positive FCF increase with Microsoft Zoom Meetings is the company’s primary product generation and Cisco’s offerings offering that provides HD video, voice, chat, and content sharing facilities across multiple devices and conference room systems for enterprise video conferencing. • HD Video and Audio: Allows for up to 1,000 video participants and 49 videos on a single screen • Built-in Collaboration Tools: Participants can share screens simultaneously and co-annotate during a meeting • Security: Offers end-to-end encryption, role-based user security, password protection, waiting rooms, and the ability to place attendees on hold • Recordings and Transcripts: Meetings can be recorded and stored locally or to the cloud with searchable transcripts • Team Chat: Enables users to chat individually or in groups, access a searchable chat history, and share files across the same platform • Streamlined calendaring: Supports scheduling and initiating meetings from Outlook, Gmail, and iCal • Offered as free and paid solutions; the Pro version has a base monthly subscription fee of $14.99/mo per host or $149.90/year per host for an annual subscription o Optional additions include Zoom Rooms, Cloud Recording, and Room Connectors that are charged separately Zoom Rooms

1 https://www.zoom.us/

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Zoom Rooms integrates existing or new conference rooms with the Zoom platform seamlessly through a combination of hardware and software for a monthly subscription fee. • Zoom Rooms software can be downloaded for Mac/Windows/iPad/Android Tablets and can be up and running in a few minutes; hardware such as screens, cameras, computers, speakers, and mics can be configured with the software • Offers one-click proximity, integrated A/V, ability to share multiple screens and room deployment and management through a single software solution • Priced at $49.00/mo for a monthly subscription; $499.00/yr for an annual subscription o Additional features include an H.323/SIP Connector that integrates with existing standardized conference room systems o Cloud Recording, Large Meeting, and Webinar functionalities are charged separately

Zoom Phone Zoom Phone is a cloud solution for phones that unifies traditional phone functionalities with the cloud capabilities and functionality of the Zoom platform. • Unified app for video, voice, messaging, and meetings that can also make and receive calls over Wi-Fi and cellular connections (with caller ID, call recording, voicemails) • Secure HD Audio provides clarity for all business interactions • Connects with native apps for Windows, macOS, iOS, and Android • Supports popular desk phone systems like Polycom and Yealink

Zoom Video Webinars The company’s webinar-specific product that offers HD video and audio, on-demand viewing, live broadcasting, event assistance, full-featured host controls, and reporting and analytics. • Users can set up private group panelist chat settings, Q&A sessions, virtual hand-raising for attendees, and more • Webinars integrate with leading CRM platforms and marketing automation systems (Salesforce, Marketo, etc.) • Allows for monetization of Webinars through PayPal via Zapier

Zoom App Marketplace & Developers The Zoom App Marketplace is the company’s proprietary marketplace for third-party applications that integrate with Zoom functionalities. They provide extensive documentation, tools, and a community forum to promote developers to create apps that integrate with the platform.

Customers Customers vary in size, from individuals to global Fortune 50 organizations. They span across all major industries. Zoom has expanded to the healthcare industry and educational institutions after being certified as FERPA and HIPAA compliant. Currently, Zoom has over 66,300 customers with more than ten employees, and 466 customers with more than $100,000.0 in revenue. No individual customer represented more than 5.0% of revenue in FY2019.

• Case Study: National Australia Bank

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NAB is Australia’s largest business bank, with 33,000 employees serving 9.0mn customers at more than 900 locations. It was seeking collaboration technology in 2018 to drive its digital transformation. After testing several services in low bandwidth environments, it found that Zoom consistently outperformed the competition while solving challenges in communicating across their branch network. Zoom was also selected due to its integration with Microsoft Teams and Office 365. The platform’s ability to support company-wide all-hands meetings on video, where the CEO could connect face to face with the global employee base was a key selection factor. Zoom Rooms were added, which significantly lowered the costs of building video-enabled conference rooms, allowing NAB to scale even to small remote branches.

• Case Study: Uber Technologies Uber has completed more than 10.0bn trips and is committed to building a platform that enables safe, efficient movement of people worldwide. Uber needed a scalable platform to manage communications for over 20,000 employees in 60 countries. Zoom was deployed in 2014 and was able to match their swift growth, with thousands of Zoom licenses added each year. They also established 2,000 Zoom Rooms and averaged 14.0mn Zoom meeting minutes a month in 2018.

Sales & Marketing The sales model combines viral demand generation through their free Zoom Meeting platform, with a sales approach optimized for each customer opportunity. Their approach integrates direct sales reps, online channels, resellers, and strategic partners. The marketing team’s objective is to create a preference for the Zoom brand by leveraging their viral growth, building awareness, and engaging users in person. Marketing is complemented with online and out-of-home advertising. The company participates in a variety of marketing and customer events and hosts Zoomtopia, its annual user conference. Zoom’s “Land and Expand” growth strategy has been successful, which involves introducing customers to core functions on its platform and then upselling other products and services. They’ve maintained a net dollar-based expansion rate of over 130.0% in the last five quarters.

R&D Zoom’s business is driven by constant innovation, the introduction of new applications, technologies, features, and functionalities. Engineers aim to stay on the edge of video and communication technologies, releasing an average of over 200 new and enhanced features a year. 20.0% of the engineering capacity is dedicated to on-demand and customer-requested features.

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◼ Outlook/Estimates

$ in millions Q2 2020E Q2 2020A Q3 2020E FY 2020E Revenue 129.0-130.0 145.8 155.0-156.0 587.0-590.0 Non-GAAP EBIT 2.0-3.0 20.7 6.0-7.0 42.0-45.0 Non-GAAP EPS ($) 0.01-0.02 0.08 0.03 0.18-0.19

The company went public in April 2019. It surpassed the revenue and earnings estimates for Q2 2020 by a considerable margin and revised the outlook upwards for FY 2020. ◼ Industry/Competition2 Zoom can be classified as a “Meetings Solutions” company. Meeting solutions combine communication (video, audio, and chat), collaboration, and content sharing. They’ve gained popularity as a substitute for in-person meetings as businesses grow increasingly distributed across geographies, and experience a rise in remote work. This shift is further fueled by better technologies, the establishment of conferencing facilities worldwide, and the adoption of cloud-based services. Cloud-based solutions offer distinct advantages that have greatly improved the seamlessness and reliability of video conferencing, a central feature of all meetings solutions. Legacy IT systems were slow, difficult to set up, and expensive to operate and maintain, often requiring complicated hardware to assist their video conference services. Aging proprietary architectures were built for on-premise solutions and were poorly adapted to cater to the evolving nature of work. Zoom and other leading market players solved these problems with cloud-based architectures that were purpose-built for video solutions to achieve a higher quality of product and service. Gartner has placed Zoom as a market leader in its Magic Quadrant for Meeting Solutions. Other competitors include established giants like Cisco and Microsoft and smaller players such as LogMeIn. Gartner estimates that by 2022, 40.0% of all formal meetings will be facilitated by virtual concierges and advanced analytics; and by 2024, only 25.0% of enterprise meetings will take place in person, down from 60.0% currently.

2 https://www.gartner.com/doc/reprints?id=1-1OH1GWOA&ct=190909&st=sb

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Cisco WebEx3: Cisco WebEx provides an all-in-one ecosystem for collaborative software that features meetings through video conferencing, chat, and cloud calling. Its platform features major integrations with other leading software such as Office 365, Salesforce, Google Cloud Platform, and more. • Cisco is rated higher than Zoom on the Gartner Magic Quadrant • Offers a freemium model, with basic functionalities in the free-to-use option, and a paid subscription at $19.00/mo per user; compared to Zoom’s paid services starting at $14.99/mo • Featured on all major desktop and mobile operating systems • Offers a fuller set of featured solutions for productivity with file sharing and collaborative messaging capabilities compared to Zoom, which is more video-centric • Zoom offers a superior user experience and interface that is easy to learn as compared to Cisco’s more complicated basket of solutions • Cisco also sells a range of WebEx devices that are tailored to the WebEx platform offering strong hardware and software integration; Zoom doesn’t offer its own devices, but its platform integrates with most existing third-party hardware

Microsoft Teams4,5 Microsoft’s legacy business messaging and conferencing app, Skype for Business, is in the process of being shut down to make way for Microsoft Teams, an integrated collaboration platform with video meeting capabilities. Microsoft Teams was released in 2017 and is offered as part of the Office 365 environment and included in certain business subscriptions for Office365. It offers chat, calling, file sharing with OneDrive and Sharepoint, integrations with other Office products, and more.

3 https://www.webex.com/ 4 https://products.office.com/en-us/microsoft-teams/group-chat-software 5 https://teams.microsoft.com/start

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• Skype for Business holds notable market share but shall be ushered out to make way for Teams; this allows for a unified Microsoft system of productivity tools with their latest cloud-based technologies • Allows for Zoom integration within Microsoft Teams; although it has video capabilities that directly compete: o Teams Meetings that competes with Zoom Meetings across all functionalities o Teams Rooms, their conference room solution, directly competes with Zoom Rooms o Webinar features live broadcasting o Also supports third-party integrations for other software and hardware, and call-only functionality • Offers free and paid versions; paid version is included in a $12.50/mo per user subscription of Office 365 Business Premium, and $20.00/mo per user for Office 365 E3 • Microsoft Teams is centered around chat-based collaboration compared to Zoom’s more video- centric approach • It is often compared to PTM* (Persistent Text Messaging) platforms such as Slack; Slack offers integrations with Zoom featuring the best of both worlds: Slack’s chat-based workflow with Zoom’s video-centric prowess • Teams is considered a newer player and less refined in chat and video compared to Slack and Zoom, respectively, but they pose a threat in the future with their integrations with other Microsoft products • Its inclusion in a Business Premium subscription makes for a very compelling argument for current subscribers to forgo paying for Zoom as Teams is already included for free • Several businesses currently have been happy to pay for Zoom in addition to their Office subscriptions because of its superior product and service when compared to Skype, or Teams’ native video capabilities

LB•LOGIC Microsoft Office is the gold standard for productivity software. We see Teams as a larger threat than WebEx in the long term due to its pairing with the Office365 environment. The ease of choosing a single vendor for a host of solutions along with better pricing is a huge advantage. Teams is relatively new and has a lot of room for improvement.

*Persistent Text Messaging (PTM) refers to chat-based workflow and collaboration platforms that were first popularized by Slack.6

6 https://blog.zoom.us/wordpress/2018/02/27/will-microsoft-teams-shift-affect-business-video-users/

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LogMeIn LogMeIn offers Communications and Collaborations platforms, Identity and Access solutions, and Engagement and Support services. Its competing products include GoToMeeting and GoToRooms, which directly compete with Zoom Meetings and Zoom Rooms. While LogMeIn is likely the most similar competitor on paper, it doesn’t offer distinct advantages over Zoom, lags in market share, and lacks an ecosystem of value-added products when compared to Microsoft and Cisco. It is unlikely to be a threat in the long term. Its Identity and Access solutions are strong; however, they fall outside the productivity and collaboration software space.

Zoom and Slack Partnership7 Slack has innovated and gained significant market share as a chat-centric collaboration platform while Zoom has done the same for video-centric collaboration. They both offer file sharing, native chat, and native video capabilities, which raises the question of competition between them. Both have somewhat cannibalized their peripheral product offerings to offer a superior two-vendor integration to their customers. Currently, users on Slack can join Zoom meetings with one click, and both companies have a multi-year roadmap to build integrations in each other’s domains.

LB•LOGIC We view the Slack and Zoom partnership favorably and believe it is necessary to compete with giants such as Microsoft and Cisco, which own their customers’ productivity environments. Long-term profitability depends on selling to large enterprises, a huge proportion of which already use Office 365.

◼ Total Addressable Market (TAM)8 Management estimates the total addressable market for Zoom will grow to $43.0bn by 2022, based on IDC Market Data. Additionally, the enterprise collaboration market is expected to grow at a CAGR of 9.2% from $31.0bn in 2019 to $48.1bn in 2024. While Zoom’s solutions are video-centric, its platform is constantly adding other collaboration features.

7 https://searchunifiedcommunications.techtarget.com/news/252469911/Slack-Zoom-partnership-could-include-joint-pricing 8 https://www.marketsandmarkets.com/Market-Reports/enterprise-collaboration-market-130299553.html

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◼ Quality of Product/Service9,10 Zoom is amongst the highest rated products/services for video conferencing across multiple community review websites (Gartner, G2, Capterra) and tech publications. Several users commend the user experience of Zoom Meetings. They note the speed with which they can connect with others, superior audio and video quality compared to other platforms and the ease with which they can host a meeting (by sending a URL link to attendees). Users note that Zoom is more than just a video meeting solution given the added functionalities: screen sharing, file sharing, recording, and more. Several reviews mention the reliability of Zoom. They noted that competing services or other video conferencing tools saw losses in quality and interruptions in the video despite strong internet connectivity. These were frustrating issues when dealing with customers, clients, or employees within their organizations and have prompted their organizations to switch to Zoom, even when other options such as Skype for Business were freely available. ◼ Founder/History11 Founded in 2011 by Eric S. Yuan, who was a lead engineer at Cisco Systems and its collaboration business unit WebEx. The Zoom service began in January 2013, and in May had gathered 1.0mn participants. In June 2014, Zoom’s participant count had grown to 10.0mn. By February 2015, the number of participants utilizing Zoom Meetings reached 40.0mn individuals, with 65,000 organizations subscribed. By February 4, 2015, the company received $30.0mn in series C funding from participants such as Emergence Capital, Horizons Ventures, Qualcomm Ventures, and more. In early 2017, the company was valued at $1.0bn, after a Series D funding from Sequoia Capital. ◼ Current Management12,13 Eric S. Yuan, Founder & CEO • Launched the Zoom platform in 2012, after 40 fellow engineers followed him in 2011 to start the venture • Before Zoom, Yuan served as the Corporate VP of Engineering at Cisco o Responsible for Cisco’s collaboration software development • Founding engineer and VP of Engineering at WebEx, part of the WebEx product from 1997 to 2011 o WebEx was a real-time collaboration company in 1997 with over a dozen employees o Eric grew his team from 10 engineers to more than 800 worldwide, growing revenue to $800.0mn o WebEx was acquired by Cisco in 2007, where he became Corporate VP • Featured on the Business Insider list of 52 Most Powerful People in Enterprise Tech, 2017

9 https://www.gartner.com/reviews/market/meeting-solutions-web-conferencing/vendor/zoom 10 https://www.g2.com/grid_report/documents/momentum-index-for-video-conferencing-summer-2018 11 https://en.wikipedia.org/wiki/Zoom_Video_Communications#cite_note-17 12 https://medium.com/thrive-global/the-inspiring-backstory-of-eric-s-yuan-founder-and-ceo-of-zoom-98b7fab8cacc 13 https://zoom.us/team

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• #1 CEO of a large US company by Glassdoor and EY Entrepreneur of the Year in Northern California (software category) • Named Inventor on 11 issued and 20 pending patents in real-time collaboration • Certification from the Stanford University Executive Program • Holds Bachelor’s and Master’s degrees in Applied Mathematics and Computer Science from Shandong University of Science and Technology • Was born in China and moved to the US in the 90s, inspired by internet opportunities

◼ Capital Allocation (M&A, buybacks, expansion)14 Zoom filed for its IPO on 22nd March 2019 and began trading on NASDAQ on April 18, 2019. It raised $356.8mn from the IPO with its shares priced at $36.00. At its debut, shares surged 80% to $65.00 and closed the day up 72% at $62.00 on its first day of trading. The IPO involved the segmentation of Class A common stock (with one vote per share) and Class B common stock (ten votes per share, and convertible to one share of Class A stock). Furthermore, the IPO was subject to a lock-up agreement lasting 180 days following the S-1 prospectus filing. The lock-up expiration date is October 15, 2019. Only Class A shares were freely tradeable in the public markets after the offering. Class B shares will be eligible for sale after the lock-up period, where shares of directors, executive officers, and other affiliates will be subject to volume limitations and various vesting agreements. The number of shares of Class A stock outstanding was 56,887,819 and Class B stock of 216,664,088 as per the company’s latest quarterly filing.

LB•LOGIC Given the surge in share price of ZM after going public, we view the lock-up expiration with caution as Class B shareholders may wish to exit their positions to realize their now significant gains.

◼ Insider Transactions15,16 Insiders bought 7,105,443 shares and sold 2,629,042 shares since the IPO. • Insiders bought 1,379,818 shares in the past three months

The buying activity on open market transactions by officers or directors is negligible; the recorded buys have been made through indirect acquisitions of shares due to officers recording acquisitions of Class A shares after the IPO.  TREND ANALYSIS

14 https://www.cnbc.com/2019/04/17/zoom-prices-ipo-at-36-per-share-source.html 15 https://www.nasdaq.com/market-activity/stocks/zm/insider-activity 16 https://www.cnbc.com/2019/04/18/zoom-ceo-eric-yuan-worth-3-billion-after-ipo-profile.html

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◼ Income Statement $ in millions FY 2017 FY 2018 FY 2019 Net Sales 60.8 151.5 330.5 Gross Profit 48.3 120.7 269.5 Operating Income 0.0 (4.8) 6.2 EPS (diluted) in $ (0.20) (0.11) 0.00

◼ Balance Sheet $ in millions FY 2017 FY 2018 FY 2019 Cash 134.3 36.1 63.6 Total Assets 164.8 215.0 354.6 Total Liabilities 33.9 82.1 202.5 ◼ Cash Flow $ in millions FY 2017 FY 2018 FY 2019 CFO 9.4 19.4 51.3 CFI (2.8) (113.4) (39.7) CFF 100.3 (4.0) 17.5 Free Cash Flow 4.5 9.7 22.9

LB•LOGIC The company has been able to grow rapidly while generating positive and expanding FCFs. We see this as an excellent sign of financial health.

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◼ Valuation 75.00x EV/LTM Sales 70.00x

65.00x

60.00x 56.14x 55.00x

50.00x 47.10x 45.00x Average

40.00x Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19

50.00x EV/NTM Sales

45.00x

40.00x 36.34x 35.00x

29.40x 30.00x

25.00x Average

20.00x Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19

LB•LOGIC Despite the recent downturn in share price, Zoom’s valuation multiples are still sky high. The Fwd EV/Sales multiple implies a ~60.0% sales growth over the next twelve months, which is reasonable as growth decelerates. If profitability doesn’t improve to match growth, we see considerable downside risk at these valuations.

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◼ Recent Price Action Zoom’s share price performance since its IPO has been remarkable. At an initial $36.00 share price offering, the stock more than doubled within two weeks. The price fell after the Q2 earnings release, despite the company beating revenues and earnings estimates, and raising guidance.

$110.00 Share Price Movement

$100.00

$90.00 $86.94

$80.00 $82.62 $70.00

$60.00 200 days MAVG

$50.00 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19

LB•LOGIC The Q2 earnings market reaction demonstrated the downside sensitivity on less than excellent results. We see this as a cautionary sign that indicates significant downside risk.

 QUALITATIVE INFORMATION ◼ Special/Unique Characteristics of the Company17 The company entered an already competitive market, years late, and then succeeded. In 2012, several venture capital firms passed on funding Zoom due to Microsoft’s Skype, Google Hangouts, Cisco’s WebEx, and other video conferencing tools already on the market.

17 https://www.forbes.com/sites/jasonwingard/2019/05/15/the-ascent-of-zoom-ceo-eric-yuan-holds-leadership-lessons-for-all/#131a6e0f7393

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“Our goal is to make Zoom meetings better than in-person meetings,” which is an extraordinary statement for the company to make. It reflects the vision of the company to push video conferencing as a central tool for collaboration and productivity. The company stresses their “video-first” cloud-architecture and has developed its ecosystem around Zoom Meetings.

LB•LOGIC It is rare for a company to enter an established product space in the technology industry and succeed. Zoom’s success is a testament to their leadership, ability to execute their product at a high level, and innovate by focusing on user experiences.

◼ Catalysts Secular trends in digital transformation and the growing importance of IT in the role of an enterprise has led to companies investing heavily in the technology backing their work and operations. Video conferencing solutions have gained traction as a substitute for face-to-face meetings. They save on traveling time, costs, and are efficient to plan. This transition of meetings to the virtual cloud is a steady trend that offers tailwinds for Zoom. Zoom’s partnerships have acted as catalysts for adoption. They’ve announced partnerships with Slack and Dropbox that allow users to access respective best-in-class platforms through seamless integrations. The ease of entering a Zoom meeting with one click through the Slack interface improves the user experience and shall likely lead to greater adoption of both platforms. ◼ What We Expect18 Zoom’s quarterly yoy revenue growth rate has seen a declining trend; we expect this trend to continue as the company’s total revenue base expands. Management has been conservative with previous quarterly forecasts, and we expect results to beat guidance. Zoom has reportedly been banned in China, and international revenues will likely be affected; this may have a material impact on overall financials since APAC constitutes a small but notable proportion of total revenues (8.0% in Q2 2020). Zoom Phone is likely to continue scaling rapidly, while the company moves upmarket and closes deals with larger customers. The lock up expiration date of October 15, 2019, is approaching and will likely see trading volume increase significantly after that. Considering the number of Class B shares outstanding, there may be a large number of shareholders seeking to exit their positions and realize their gains since the IPO, presenting downside risks on the share price.

18 https://technode.com/2019/09/09/china-blocks-us-video-conferencing-tool-zoom/

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 RISKS TO THE BUSINESS Competition Zoom’s execution in developing its product has been exceptional, which has led them to succeed in a crowded market of video conferencing solutions. However, their platform architecture advantages will likely fade as competition imitates their best practices and execution approach in the long term. Zoom is mostly focused on video conferencing, but providers such as Microsoft and Cisco have large ecosystems of productivity solutions that businesses may prefer as all-in-one options for their IT and software. Financial Risks Positive FCF generation is remarkable at its current growth rate. Operating Income is positive though an economic downturn may lead to a lower share price and result in financial stress. Geopolitical and Regulatory risks A proportion of Zoom’s employees and operations are based in China. Geopolitical tensions, the trade war, and regulatory changes may impact the company. Alternatively, China blocked Zoom services recently across the country and put the company on a growing list of banned internet services.

 VISUAL REPRESENTATION OF CAPITAL STRUCTURE

Percentage of Enterprise Value

Convertible promissory notes 0.07% $15.0mn

0.24% Total Debt $53.4mn

103.2% Market Capitalization $22.6bn

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 GLOSSARY

EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization. A measure of a company’s operating performance, which allows the investor to analyze the earning power of an enterprise without having to consider financing or accounting decisions or tax environments.

EV/EBITDA: A valuation metric intended to describe the total amount an acquirer would have to pay to purchase a company (incorporating the cost of assumed debt) per dollar of EBITDA.

Fwd: Shorthand for Forward. Generally means “Next Twelve Months”.

Market Cap: Market Capitalization. Calculated by multiplying stock price by number of outstanding shares.

ROA: Return on Assets. A measure of financial performance that shows the percentage of profit that a company earns in relation to all of its available resources (both debt and equity). Calculated by dividing Net Income by Average Total Assets.

ROE: Return on Equity. A measure of financial performance that shows the percentage of profit that a company earns for each dollar of shareholder equity. Calculated by dividing Net Income by Average Shareholder Equity.

ROIC: Return on Invested Capital. A measure of financial performance intended to evaluate a company’s growth and measure how efficiently a company is using investor funds to generate income. An ROIC of 2% or more in excess of a company’s cost of capital defines a value creator. Calculated by dividing after-tax Operating Income by the book value of all Invested Capital

TTM: Shorthand for “Trailing Twelve Months”.

YTM: Shorthand for “Yield to Maturity”. YTM is the total return expected if an investor holds a bond to maturity, with the assumption that all coupon and interest payments are made on schedule.

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DISCLAIMER: This Report is provided for informational purposes only and is prepared without regard to the investment objectives, financial situation, or needs of any investor. The Report is not intended, and should not be relied upon, as a source of any investment recommendation, makes no implied or express recommendation to hold, sell, purchase or take any other action with regard to a security, and is not an offer or solicitation for the purchase or sale of the security that is the subject of the Report. Investors must exercise their own independent judgment as to the suitability of a security.

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