Are Work-From-Home Tech Stocks the Next Big Thing?

There is a rise in the popularity of Zoom Video, Slack, Dropbox and others since most business companies across America have been sending employees to work from home. In addition, a developing list of companies including Apple, Microsoft, and Amazon have asked employees to work from home.

Places in San Francisco that hold public events with more than 50 people have been closed, including the Palace of Fine Arts, City Hall, and Bill Graham Civic Auditorium. The effects of the pandemic are already evident, with spacious parking spaces in high-density areas and lighter traffic.

Investors are now wondering if there is a temporary trend in work-from-home productivity tied to the pandemic or if there is a permanent one being established.

Thanks to technological advances in cloud platforms, software, and productivity tools, work-from-home is already an ideal solution since the workforce is able to communicate flawlessly from their own houses. The setup has resulted in the cloud boom, with companies composed of more than 250 employees disbursing $225,000 annually on software-as-a-service (SaaS) and averaging 124 SaaS applications.

Comparing this to 2013 when Marissa Mayer, Yahoo’s former CEO, authorized a ban of “work from home” for their employees. This was the time when the standard mid-sized company’s purchase of cloud SaaS products has $25,000. The SaaS market has increased to 118% in a span of three years (2017 to 2020).

Not only did Yahoo limitedly pre-dated the cloud boom, but the company may have risked missing out on great talent. Currently, tech companies have to make a decent proposal to attract employees to pay high Bay Area real estate rates and deal with traffic congestion.

Expensive tech hubs

Commuting costs would reach up to $30,000 a year in the Bay Area and about $11,000 annually ($45 a day) for other places. The second figure reflects the cost after taxes, so consider 30% as another factor for the overall impact of commuting on an employee’s salary.

Meanwhile, the normal mid-range price for a house in San Francisco is $1.7 million. This has tech workers to withdraw from choosing tech hubs in Austin and Portland. Hence, companies can offer their employees with remote work to reduce the impact of commuting and also retain talent.

GitLab, a private company that specializes in developer operations, commonly known as DevOps and also DevSecOps for security operations, is an “all-remote” company with over 1,000 employees. The company provides a lifecycle tool and storehouse manager to allow teams to work together on code. GitLab’s 2019 Global Developer Report explains that all remote teams are 1.6 times most probably to quantify and document work and 17% most probably to have enough insight into their teams’ work.

Productivity tools

As the coronavirus outbreak has spread in the U.S., Alphabet’s GOOG, +8.11% GOOGL, +8.28% Google immediately grabbed the offer for free video-conferencing. Last March 3, the company declared free access to advanced Hangout Meet video-conferencing features, which include bigger meetings for as many as 250 participants and live streaming for 100,000 viewers in each domain.

Meanwhile, productivity shares pure-play Zoom Video ZM, -4.10% has significantly exceeded the S&P 500 Index SPX, +7.03% in the past 30 days.

Zoom Video might currently be an ideal communication platform option since many productivity tools have been showing double-digit decreases over the past few weeks. In particular, early investors in Zoom Video had to survive their fear of the stock’s high valuation.

Stockholders have turned their heads away from companies with productivity tools that have strong earnings. Dropbox (DBX) +0.55% crushed both the upper and lower lines in its earnings report for the fourth quarter, yet the company gave up all its dividends in the coronavirus sell-off. Since then, the stock has proceeded with its losses and is now trading 33% below its recent post-earnings high.

Thursday was a specifically confusing time for a dividend report, but DocuSign DOCU, +14.11% surpassed the fixed earnings of 12 cents per share, compared with the expected dividends of 5 cents. It also surpassed revenue projections. While the shares grew, they are behind the $91.49 rate that DocuSign was trading two weeks ago.

Nevertheless, DocuSign performed better its cloud productivity equivalent Slack WORK, +0.20%, which rose about 22% after hours. Slack surpassed revenue and earnings, but it provided light guidance for the January fiscal year (2021). The company’s issues were somewhat expected as the stock blew through support the week resulting in gains.

Connected teams

GitLab is the ideal example of a tech company that makes full use of technology. If the purpose of technology and cloud products is to reduce costs and improve lives by connecting teams anywhere they’re located, then I guess it’s the perfect time for companies who sell cloud products and services, e.g. Salesforce CRM, +9.85%, Google and Apple AAPL, +8.72%, to be the first ones to establish the work-from-home scheme for their employees.

Cloud productivity may be put under the test with the current pandemic situation. But the pressures caused by commuting and real estate shortages can be lessened with the work-from-home scheme. This season won’t be the ideal time for serious earnings in this category, but experienced investors should see the trend thrown in front of them.

©Copyright 2004-2019 by Capstone Global Partners