Spruce Point Capital Management Issues 'Strong Buy' Research Opinion On Zoom Communications Inc. (Nasdaq: ZM)

ZM (strong buy): Bear thesis on video co doesn't hold up. Transforming to comprehensive AI-first platform for human connection driving deeper enterprise penetration underappreciated. Trading at massive discount to intrinsic value, especially considering ~$1.2B stake in AI leader Anthropic (valued at $400B, could double to $800B). FY26: $4.8B rev (+3% YoY), $1.9B FCF (40% margin), 76% gross margin, 23% adj net margin. Q4 showed inflection: AI monetization accelerating (all top 10 deals included paid AI), Contact Center ARR growing high double-digits, Online segment returned to growth (+2.6% YoY first time since FY22), Enterprise customers >$100K grew 9% YoY. Trading 4.1x FY27E rev, 9.5x EBITDA vs peers at 13-31% premium; 3-yr trough FCF multiples. Analyst high PT implies 28% upside. DCF shows 40% upside with consensus; well over 100% upside potential from: 1) $4B modified Dutch auction tender (10% EPS accretive) + $1/share dividend (1.1% yield), 2) OpEx rationalization (rev/employee down 14% since 2020 vs peers +53%; headcount still 85% above pre-COVID vs Twilio -31%, Shopify -34%), reallocating S&M to R&D could drive FY26-28E EBITDA CAGR from 4% to 13.3%, EV/EBITDA re-rating from 9.5x to 19x = 83% upside, 3) Fix intl biz (28% rev mix, 1% 3-yr CAGR vs US 5%), 4) Improve marketing (brand equity underutilized), 5) Avoid M&A mistakes (Five9 near-disaster), 6) Consolidate insider selling (secondary to financial investor could drive 10%+ pop), 7) Collapse dual-class structure (4-10% one-day return), 8) Lobby for S&P 500 inclusion (avg 17% return for tech adds), 9) Pursue sale if no value creation within 1 year (PE buyouts avg 33% premium, strategic buyers incl MSFT, GOOGL, ORCL, CSCO, VZ, CRM, PATH). Near-term catalysts: AI Companion adoption up 3-4x YoY, Contact Center in Gartner Magic Quadrant with 65% customer growth, Phone $1B ARR, multi-product bundling driving 1.2x-3.4x deal size uplift, improving channel execution (9 of 10 largest CCaaS deals via partners), 98% net retention. Risks: SaaS-pocalypse/AI disruption fears, Teams bundling pressure, enterprise execution, Online segment volatility, intl underperformance, stock dilution from options/RSUs. Sent letter to Board with 9 recommendations; mgmt open to suggestions. Stock flat 3.5 yrs despite biz transformation; recent AI fearmongering created opportunity.

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