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Why Zoom Video Communications Stock Popped 10% Today

By Rich Smith - Mar 9, 2021 at 6:10PM

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The CEO just gave his shareholders a gift.

What happened

Shares of videoconferencing star Zoom Video Communications (ZM 6.11%) closed 10% higher after a busy trading day Tuesday. The big move came after The Wall Street Journal reported that company founder and CEO Eric Yuan and his wife have collectively "transferred" shares that they own, representing 40% of their recent ownership stake in the company, "to unspecified recipients."

So what

Why are investors taking this as good news? Well, at the least, it seems the CEO and his wife didn't sell the shares. Judging from recent experience, that would probably have been taken as bad news. Rather, the Journal reports that the transfers were "gifts ... from two trusts for which Mr. Yuan and his wife are co-trustees."  

The Journal added that, according to a Zoom spokeswoman, "the distributions were made in accordance with the terms of Eric Yuan and his wife's trusts, and are consistent with the Yuans' typical estate planning practices."

Origami dollar folded into an arrow pointing up.

Image source: Getty Images.

Now what

And that sounds rather innocuous. Perhaps more important than the actual share transfer is what appears to have happened to the shares themselves upon their transfer to owners other than the Yuans. Specifically, the shares converted from "Class B" status, in which the shares conferred the right to 10 votes each in shareholder voting, into ordinary "Class A" shares, in which the shares now adhere to one share, one vote rules.

Result: The CEO and his wife have given up considerable voting power over Zoom. In so doing, they've effectively given outside shareholders a gift as well -- significantly greater voting power to control the future of Zoom Video Communications.

That makes all other shares of Zoom worth correspondingly more today and is a great reason for the stock price to be going up.

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