Investment highlights Zoom, a leading US video cloud manufacturer, was listed on April 18, 2019, with a market capitalization of 100 billion yuan, drawing great attention to the video cloud industry in the market. Zoom is a technology company that provides SaaS products for video conferencing. It was founded in 2011 by Yuan Zheng, former chief engineer of Webex, a Cisco subsidiary. It provides video conferencing software that can be easily used across devices (Cisco, Polycom, Huawei, etc.) and across teams (from small teams to large enterprises), that is, video cloud. Zoom's value proposition is to make Zoom meetings better than face-to-face meetings; Zoom believes one of its most important features is its ability to support a wide range of devices, operating systems, and third-party apps. We have determined that the next generation of enterprise communications will be based on “video” and integrate video capabilities into the core business processes of the enterprise. However, there are still two major pain points in the current development of video conferencing: ① poor communication effectiveness, unclear video images, interference with calls, etc.; ② there is no interconnection, terminals of different brands and regions cannot be effectively connected, and external users are unable to access video, thus affecting the efficiency of communication. These two major pain points are seriously limiting the development of the video conferencing market. According to the Zoom prospectus, the amount of video conferencing used by customers increased dramatically after purchasing Zoom products. For example, when a health center used other products, the number of meetings per week was less than 100. After switching to Zoom, the average number of meetings per week skyrocketed to 2,000, fully demonstrating that the penetration rate and frequency of video conferencing have huge potential to increase. Benefiting from the development of 5G, live video streaming will be more effective, solving the first pain point. 5G will first be the era of video. The core technical indicators of 5G networks, such as bandwidth, reliability, and latency, will be greatly improved to support high-definition video communication anytime, anywhere. At the same time, 5G will also promote the increase in fixed network bandwidth (wireless networks and fixed networks are in a collaborative and competitive relationship) and jointly solve the first pain point of video conferencing. More importantly, through the deployment of video clouds, video integration is realized, and the second pain point is solved. The advantage of video integration is that it has excellent compatibility, is basically compatible with all terminals, and is not restricted by region or terminal brand, thus effectively solving the pain point that video conferencing cannot be connected. We are relatively more optimistic about the development potential of third-party SAAS companies in the video cloud field, which is why the video cloud leader is Zoom, not Cisco's subsidiary Webex (the former owner of Zoom's core management). 263 The potential for development in the video cloud is huge. In 2018, the company unified and integrated 263 conference calls, online conferences, and video conferences. Users only need a 263 corporate conference account to hold any type of conference they need to achieve unified user management, product permission management, meeting reservation and usage management, etc. For enterprise customers who have purchased a large number of hardware video conferencing systems (including Polycom, Cisco, Huawei, ZTE and other brand equipment manufacturers), 263 video conferencing is perfectly compatible from the protocol layer. Customers can make full use of existing equipment. Through the 263 cloud service, they can quickly and inexpensively solve pressing needs such as expansion, external networks, and mobile access. It has solved the problems of traditional video conference MCU's inability to expand flexibly, use complexity, and heavy dependency on dedicated private networks. As a third-party company, 263's advantages in the video cloud market are: ① 263 has always focused on serving the enterprise market, ranking fifth in the corporate email market; ② The subsidiary acquired in 2015 shows that interactive is the leader in the field of corporate live streaming, serving users of more than 1000 large and medium-sized enterprises and well-known education and training institutions around the world, such as IBM, Huawei, Lenovo, JD, Alibaba, New Oriental, Suntech, Guangzhou Automobile Honda, Bank of Communications, China Southern Power Grid, etc. Capital Online and Zhiyuan Internet plan to go public, and the 263 equity investment will greatly add nearly 200 million yuan. According to the 263 announcement: ① Capital Online's application for GEM listing has been accepted. Capital Online is an IDC service provider dedicated to providing enterprises with integrated cloud network solutions. The net profit for 2017-2018 was 40.5 million yuan and 57.8 million yuan respectively. After the successful listing of Capital Online, the 263 equity appreciation is expected to reach 60 million yuan. ② Zhiyuan Internet's application for listing on the Science and Technology Innovation Board has been accepted. Zhiyuan Internet focuses on providing customers with collaborative management software, solutions and cloud services. The net profit for 2017-2018 was 44.66 million yuan and 72.98 million yuan respectively. After the successful listing of Zhiyuan Internet, the 263 equity value is expected to reach 130 million yuan. Profit forecast estimates: The forecast for net profit of 263 million in 2019-2021 is 163 million, 212 million, and 277 million (up), corresponding to the current market value (April 21, 2019). PE is 44 times, 33 times, and 26 times, maintaining a “prudent increase in holdings” rating. Risk warning: 1. The entry of Internet giants into video cloud communications has led to a sharp increase in competitive pressure in the industry; 2. The scale of goodwill is large, and poor management of some subsidiaries has led to impairment of goodwill; 3. Domestic operators have strengthened their internationalization strategies, causing pressure on international dedicated line services.