Dive Brief:

• Zoom Video Communications on Jan. 15 closed out a stock offering after selling $2 billion in shares, exceeding its initial plan to raise approximately $1.5 billion to $1.75 billion from investors, the company reported in a release.
• "I wanted to preserve optimal flexibility for our balance sheet," Zoom CFO Kelly Steckelberg told the Wall Street Journal, noting Zoom didn't designate funds for specific investments.
• The strong demand by investors follows a boom in the company's videoconferencing services fueled by the economy-wide shift to remote work. During the third quarter ending Oct. 31, 2020, Zoom's total revenue rose 367% year-over-year to $777.2 million.

Dive Insight: 

The way that Zoom raised capital may signal a trend for 2021 and be more significant than the fact that it exceeded its funding goal. After a year in which U.S. companies turned to the bond market for capital at an especially fast pace, Zoom opted for an equity raise.

When the pandemic struck in March, economic growth plunged, market volatility surged and most companies faced challenges raising capital through conventional financing.

The Federal Reserve pledged to do whatever was needed to backstop the economy. The Fed reduced the benchmark interest rate to near zero and, for the first time, pledged to buy corporate debt. Corporate bond sales rocketed as companies buffered their balance sheets against the pandemic and took advantage of exceptionally low borrowing costs.

Corporate bond sales may slow in 2021 as vaccinations push back the pandemic, optimism about the economy grows, the Biden administration seeks greater fiscal stimulus and companies turn their attention to paying down debt.

While reducing leverage, U.S. companies may also use their cash to invest in their operations. Zoom plans to channel its newly raised capital toward building data centers and expanding its marketing and sales operations, Steckelberg told the Journal. It may also use the capital to finance mergers and acquisitions.

The equity sale roughly doubled the amount of cash Zoom is holding, Steckelberg said.

Zoom may need the additional capital, and balance sheet flexibility, in order to sustain its rapid growth. A weakening in the pandemic will likely slow growth in demand for video conferencing.