Zoom CFO Opts for Equity Raise Instead of Debt Sale to Keep Options Open

The company initially planned to collect $1.5 billion to $1.75 billion from investors, but ended up raising more on strong demand for its shares, Chief Financial Officer Kelly Steckelberg said.

“I wanted to preserve optimal flexibility for our balance sheet,” Ms. Steckelberg said, adding that Zoom didn’t earmark funds for specific investments, which is why it offered equity instead of selling debt.

The fundraising, which was the company’s first since its initial public offering in 2019, roughly doubled the amount of cash Zoom is holding, Ms. Steckelberg said.

The fresh capital likely will be spent on expanding the company’s sales force and marketing, and for building out its data centers, Ms. Steckelberg said. Zoom last year said it would enlarge its research and development capabilities in Singapore and Bangalore, India. Some of the cash could also be used for mergers and acquisitions, Ms. Steckelberg said.

Zoom will provide more details on its spending plans when it releases earnings on March 1, she added.

The company reported strong results in its most recent quarter ended Oct. 31. Total revenue was $777.2 million, up more than $600 million from the prior year period. Income from operations was $192.2 million, compared with a loss of $1.7 million for the same period in 2019. Zoom had about $70 million in debt at the end of October, according to S&P Global Inc.

The fundraising is in line with those of other businesses in this space, analysts said.

“A lot of software companies have been raising capital in some way or form,” said Dan Romanoff, an equity analyst at Morningstar Research Services LLC, a research provider. Some of these firms sold debt that would convert into shares later, Mr. Romanoff said.

Zoom likely will use some of its capital for a tuck-in acquisition or for additional infrastructure investments, said Tom Roderick, an analyst at Stifel Financial Corp., an investment banking firm.

The company could look for targets that sell collaboration tools and could help Zoom as it battles rivals such as Cisco Systems Inc.’s Webex or Microsoft Corp.’s Teams. “They are up against well-capitalized competitors,” Mr. Roderick said.

Zoom will conduct future fundraising rounds remotely, similar to the recent one, Ms. Steckelberg said. “I can’t imagine it would be any different,” she said, adding that virtual meetings with bankers and investors during the pandemic have been very efficient.

Write to Nina Trentmann at [email protected]