Thread by @JaredSleeper

Some personal news: I'm pursuing an exciting new opp and on leave this summer. One upshot is I can rejoin fintwit. I've learned so much here (thanks @AltaFoxCapital , @jamesjho_ , @GavinSBaker , @DanRose999 et al) so I'm excited to jump in. My first🧵is on $ZM + $FIVN 👇

1/ I'll break down some category history, the nature of $ZM's competition with $MSFT, why I think the acquisition makes sense and why I expect Microsoft will respond with a move of its own.

2/ First, a recap. $ZM entered the pandemic with roughly 4m paid users (assumes $17/month ARPU). Today it has >20m (including me!) along with hundreds of millions of free users. The free Zoom product is robust and allows unlimited minutes in a meeting hosted by a paid user.

3/ As a result of the pandemic-driven behavior change, we have almost certainly passed the peak for daily videoconferencing minutes. Of course, that doesn't mean we're anywhere near peak Zoom- far from it. There are still just ~20m paid Zoom users in a world with 7bn+ people!

4/ It does beg a question though- with video minutes stagnant, what is going to drive all the free users to paid? Obviously, there's a ton Zoom can do- customer education, new premium features, international, sales headcount, etc.

5/ All will help, but none is as promising to me as biz telephony, one of the largest recurring revenue TAMs. It's sometimes underestimated since today it is divided up amongst carriers, handset makers, and channel. But bottoms-up, 400m biz users at $20/month is a $96bn TAM(!!)

6/ This hasn't been unnoticed. $MSFT has tried repeatedly to add phone to its existing worker tax (O365). A complex channel, the need to integrate legacy on-prem hardware and choppy initial call quality all slowed things down. Progress was led by upstarts like $RNG and $FIVN.

7/ Then came COVID. We all know what happened to video. Meanwhile, the era of a physical phone for each user at her desk ended overnight, along with generations of user inertia. The case for keeping separate systems evaporated while the rationale for convergence strengthened.

8/ This was a huge opportunity for $ZM, but also a shock- it had to adjust to global fame, security concerns, ballooning usage. Zoom Phone was thrust into the spotlight as a toddler and held up. It is already at 1.5m seats (!!). It took $RNG over 18 years to reach that milestone.

9/ It's easy to see how this could turbocharge Zoom's growth. Many of the hundreds of millions of free users are paying for a business phone plan they already use less than Zoom. If Zoom Phone replaces those plans, Zoom premium licenses go "wall-to-wall" to every worker in a co.

10/ With this opportunity comes an existential threat: Teams. Teams video is free and better than Zoom in important ways. Many users live in Teams chat already and it is great to have one interface for chat/voice/video where one can see the availability of teammates.

11/ Happily for Zoom, telephony is how Microsoft plans to monetize Teams. A customer has to upgrade to the E5 bundle in order to use Teams telephony. E5 is 80% more expensive than E3 (!!). This upsell is key to the long-term growth of Office365 ARPU.

12/ Microsoft has various ways of driving E5 (security, etc.) but Teams telephony is the biggest one. Thankfully for Zoom, it means that unlike Teams video and chat, which were distributed like free candy at a parade, telephony will be a big, expensive decision for customers.

13/ Upselling telephony on top of ubiquitously used adjacent products given away for free is a strategic masterstroke for $MSFT. But the "upsell" motion is an opportunity for competitors to sell their own visions. The RFPs Slack never saw will exist for Zoom to compete for.

14/ Only a few companies have an angle to be competitive in this wave: $MSFT and $ZM (dark horses: $RNG, $CSCO). Billions of dollars in profit will flow from the telephony stack to these companies over time. MSFT/ZM will be competing for each dollar and supremacy.

15/ So, how does $FIVN fit? Contact center software is often bundled with enterprise phone systems. Tight integrations are valuable (for example, a contact center agent often calls other folks internally to troubleshoot). Contact center is seeing its own channel convergence, too.

16/ In the battle for 500 seat+ enterprise telephony deals, contact center is often a meaningful consideration. If 150 out of 1000 employees are in a contact center, the contact center contract is similar in size, $ wise. A vendor with both solutions has a big bundling advantage.

17/ It would take $ZM years to build its own. With $FIVN, it can quickly come to market with a full-stack solution. Zoom brings universal brand awareness, robust infrastructure and a dynamic CEO in @ericsyuan who is both a stellar human and a customer-focused visionary.

18/ The purchase of Five9 is a major salvo in the battle to own the convergence between video/telephony in the enterprise. It will almost certainly end up being a multi-horse race, but even a duopolistic dynamic between $MSFT and $ZM would be huge for Zoom.

19/ Dreaming a little, one day Zoom could have 100m business users paying $30/month + 5m contact center users paying $150/month for $45bn of revenue. At a 50% operating margin ⇒ $18bn of profit after tax. A 30x multiple on $18bn is $540bn of market cap, up >5x from today.

20/ Will it? Of course, it is hard to say. As an investor, it's all about finding proof points. The key for me would be finding large enterprise expands where $ZM beats $MSFT in wall-to-wall voice/video deployments despite Teams being entrenched for chat.

21/ If those become common, it bodes well. The Five9 deal is about adding another selling point in those deals (a fully integrated omnichannel communications solution for the whole enterprise, internal and external), while also expanding Zoom's TAM.

22/ I expect $MSFT will respond. It has plenty of options, including making an acquisition of its own (some vendors like Genesys are already partnered with Azure).

Contact center is a key piece of the telephony puzzle, telephony is key for E5, E5 is key for $MSFT. Game on.