What are the potential long-term impacts from the work-from-home economy according to social mentions and sentiment?
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When COVID-19 emerged, most of the working world went into a lockdown phase, and the idea of a new “stay-at-home” economy came into hard focus. For many of us, that meant meeting project deadlines while being serenaded by a toddler or splitting time between board meetings and homeschooling sessions.
The question on everyone’s mind was whether this new economy would be a mere blip in the continuum of office-based work, or whether it had accelerated an already-rising trend, however strange it seemed.
As virtual connections came to mean economic survival, as well as providing an effective antidote against “insanity by isolation” (no, talking to yourself near the fridge isn’t “cooler talk,” nor is it cool), companies that played a critical role in supporting or creating this work-from-home lifestyle were suddenly thrust into the spotlight.
Now, with businesses reopening, investors are wondering about the sustainability of both the remote work trend and the sudden prominence of businesses that helped bridge the gap between the COVID shutdown and the current reopening of businesses.
Sentiment data compiled by LikeFolio offers a snapshot of the intricate dynamics driving the stocks.
COVID-19 Accelerated an Existing Trend
Figure 1 below shows the trend in social mentions of “working from home” over the three-year period between January 2017 and 2020. Notice not only the short spikes, but also the slow, yet accelerating formation of a larger and perhaps longer-term trend.
Figure 2 below, which includes data gathered from March to May 2020, shows a much clearer spike in this trend. Of course, you might be thinking, “Well, duh!” But the sheer magnitude of the jump is incredible. We’re talking a year-over-year increase of +1,833% in the last quarter.
Nationwide shutdowns began in early March, when the coronavirus sky fell on the U.S., causing most businesses and schools to temporarily close in an effort to prevent the novel coronavirus from spreading.
While many businesses shifted gears toward temporary virtual communications and video conferencing platforms, some—notably Twitter (TWTR), Facebook (FB), and Shopify (SHOP)—moved to make remote workforces a permanent way of conducting business.
Perhaps these companies were worried about a second wave of infections. Maybe they thought doing work while spending more time with the kids, pets, and spouse (not necessarily in that order), and skipping the commute was more productive and beneficial than the cubicle lifestyle. Or possibly, they discovered that efficient decentralization brought about untapped potential among their employees.
Whatever the case, the notion of a permanent remote workforce turned the “work from home” alternative into an actual economy. As LikeFolio’s 30-day moving average shows in figure 3, mentions of a permanent work-from-home status increased significantly.
What Essential Services Do Businesses Need to Support a Remote Workforce?
Suppose you own a business. For one reason or another, you feel compelled to “go remote.” But how? What essential tools might you need to achieve and sustain “virtualization”? At the most basic level, you might use a cloud-based virtual conferencing platform, digital collaboration tools, a customer relations management system (no business without customers), and digital storage for your files and other miscellaneous stuff that takes up a lot of real-world room.
Unsurprisingly, a handful of companies that provide these services have generated a great deal of attention:
- Zoom Video Communications (ZM) and Slack (WORK) experienced a huge surge in demand—Zoom for its video conferencing platform, and Slack for its virtual collaboration hub technologies.
- Microsoft (MSFT) enterprise cloud technologies were already experiencing high demand, but the company’s Teams platform is a direct competitor to both Zoom and Slack.
- Although Salesforce (CRM) and Dropbox (DBX) were not in the tech spotlight during the pandemic’s disruptions, both offer critical cloud-based services for remote business operations.
As a business owner, you wouldn’t use all of these services. Some are competing for the same market share. And that brings us to the question many investors have: Who’s going to potentially experience success among these five (not counting others that have plans to compete in this virtual arena)?
Let’s take each company and compare them, starting with market performance.
Market Performance vs. User Demand
Year-to-date, we can see how each company’s market performance, as seen in figure 4 below, fared leading up to and beyond the COVID-19 pause. What’s clear is that all five companies outperformed the S&P 500 (SPX).
Relative newcomers Zoom and Slack, which both experienced possibly the largest surge in user demand, topped all others, with Zoom staging an astounding 205% rally, and Slack outperforming the rest at over 39%. Dropbox came in third with a 21.8% gain, Microsoft stands at a strong 19%, and Salesforce saw a solid-yet-tempered 5% rise. (It’s important to note that WORK entered COVID-19 quarantine (close date March 11) 39% lower than its June 2019 IPO open.)
When you see such performance, it might make you wonder if share prices are matching actual user demand. To help paint a clearer picture of this correlation, LikeFolio comparative charts can potentially show whether there’s a gap between share price and consumer purchase intent, or whether both are in line (see figure 5 in the next section for an example). It’s fair to point out, though, that for the top performers, the remote platform is the core of their business models, whereas for Microsoft and Salesforce, other dynamics tend to drive their share prices.
Zoom, Slack, and Dropbox: Remote Becomes the New Normal
It seems as if everybody and their grandma relied on Zoom to teleconference family, friends, schoolmates, or coworkers. It’s as if the video conferencing platform was exactly what was needed to counter the isolating effects of social distancing. Zoom’s Q1 earnings of $0.20 cents per share and revenue of $328.2 million topped analyst consensus, as well as the company’s own guidance.
According to LikeFolio’s chart (see figure 5), the surge in Zoom’s consumer purchase intent matched the upward surge in its share price.
When Slack reported its Q1 earnings, the company topped analyst expectations, but the results didn’t have the same strong impact as its competitor, Zoom. Despite revenue growing 50% in the quarter—reflecting sales and subscriptions amid the pandemic—this perceived lack luster in earnings performance likely drove share prices down post-earnings, as evidenced in figure 6.
Next on the list, Dropbox presents us with an interesting scenario. Consumer purchase intent is soaring far above its actual share price. Most people know Dropbox for its legacy cloud-storage solutions that let you stash documents and photos, among other digital assets.
Some businesses have used Dropbox like an additional server, allowing employees to share, access, and edit active documents. But Dropbox’s plan is to convert its legacy storage into a collaboration platform that integrates with both Zoom and Slack—a move that could potentially strengthen and complement all three companies.
Microsoft and Salesforce: Remote Is One Piece of the Puzzle
Microsoft is the proverbial monster in the room. Everyone expected Microsoft to be affected, however slightly, by the pandemic. But given its suite of software products, cloud tech, laptop sales, and video games (the ideal distraction when cooped up at home), the company’s revenue actually accelerated during the lockdown. Its Q3 earnings in late April topped consensus estimates at $1.40 versus $1.26 earnings per share, and revenue of $35.02 billion versus an anticipated $33.66 billion.
Moving forward, the big story for Microsoft in the work-from-home arena is Teams. With video conferencing capabilities that can scale 250 active participants, live event platforms that can host up to 100,000 virtual attendees, and tools to connect collaborators, Microsoft is on a collision course with Zoom, Slack, and, to a certain extent, Dropbox. As figure 8 below indicates, market performance can sometimes follow consumer purchase intent data. In in recent days, these shifted into alignment.
And last but not least, we have Salesforce, the cloud-based customer relations management company that has replaced the spinning contact list and business card holders for many companies. Salesforce’s Q1 earnings reported in late May slightly beat analyst estimates. But company shares dipped due to “soft” guidance.
During the COVID-19 lockdown, businesses that were slow in adjusting to the new remote economy were less able to make use of Salesforce services, unsurprisingly. Perhaps this underscored the importance of virtual upgrades, in addition to making Salesforce something of a business staple, while keeping customer data and communications accessible.
Strong Players Step Up to the Plate …
As a large majority of business have reopened or have plans to reopen in the near future, investors may be wondering which companies will retain new users and convert them into longer-term paying customers. Much of the answer depends on whether the work-at-home trend continues to grow. And if the trend proves to be permanent, which companies will gain the competitive upper hand in terms of product expansion, innovation, and eventually market share?
Zoom has a popular video conferencing platform. But is it a “one-trick pony”? The same question can be asked about Slack. Will Microsoft Teams’ video conferencing and collaboration platform land a crushing blow to both? Bear in mind that Facebook’s (FB) Messenger Rooms and Alphabet’s (GOOG) Video Meetings are targeting Zoom’s “blue ocean,” dominant position. Or might the Dropbox integration give Zoom and Slack a differentiated advantage?
Will Salesforce retain its advantage in customer relations management software, or will Microsoft Dynamics CRM encroach on the Salesforce’s territory?
Much of this depends on customer adoption, which is a very fluid space. This means it can change quickly over time depending on product innovations, marketing and sales, and, of course, word of mouth (brand proselytizers). One way to keep tabs on all of it is to follow customer purchase intent data.
Andy Swan is not a representative of TD Ameritrade. TD Ameritrade and LikeFolio are separate and unaffiliated companies. The views and opinions expressed in this article are are solely those of the author. Social and consumer sentiment data should not be used alone when making investment decisions. Please consult other sources of information and consider your individual financial position and goals before making an independent investment decision.