Yuan noted several companies in Silicon Valley that “do not have a single physical office,” saying that virtual “video is the future of communication.” “I don't think that's temporary,” said Zoom CEO Eric Yuan, in response to an analyst’s question regarding the platform’s sustainability post-lockdown. In other words, Covid-19 didn’t cause the stay-at-home economy, it just helped speed it up.Īnd if they’re right, it means that the remote workspace isn’t going away any time soon. Listening to the CEO responses, you might get a sense that they see the pandemic not so much as a “change agent” but as an “accelerant'' to an existing trend. Sustainability of demand was something that was brought up frequently in Q4 conference calls for both companies. Change Agent or Accelerant for the Virtual Workspace? But if the lockdown turns out to be a fundamental growth driver for Slack and Zoom, it’ll be interesting to see how sustainable that growth is once economies reopen. The coming Q1 earnings-which reflect the months of February through April- may show how much each company grew once the stay-at-home economy kicked in when “supplemental” platforms became an absolute need. The pandemic didn’t really hit the global economy beyond China until February, after the companies recorded their fiscal Q4 results. One thing to keep in mind is that these results, which suggest a growth trend in product adoption, reflect what happened before the Covid-19 pandemic-in other words, before “shelter-at-home” orders were in place. Zoom’s CFO Kelly Steckelberg mentioned that its “new customers account for approximately 59% of year-over-year growth in subscription revenue.” Slack’s CEO Stewart Butterfield noted “exceptional growth at the high end” (of customers) in their final quarter of the old fiscal year. Also, both companies topped (to varying degrees) analyst expectations during their Q4 reporting dates, which happened in mid-March amid the early weeks of the Covid-19 crash.īoth companies saw a surge in platform adoption in their respective fourth quarters for the fiscal quarters ended Jan. It’s reasonable for investors to speculate that WORK and ZM shares may have advanced on hopes that increased demand for their virtual communications platforms might boost Q1 earnings. Chart source: The thinkorswim® platform from TD Ameritrade. Data source: Nasdaq, S&P Dow Jones Indices. Past performance does not guarantee future results. Since the coronavirus selloff, Zoom (ZM–candlestick) has outperformed the S&P 500 Index (PX–purple line). ZM has been playing off the strength of the stay-at-home economy during the. Since the selloff, ZM has gone on to hit record highs (see figure below).įIGURE 1: ZOOMING ALONG. Toward the end of March, both stocks were outperforming the S&P 500 Index (SPX). ZM had a slight pullback but generally bucked the overall trend. As the broader market tumbled during the Covid-19 plunge, WORK experienced a steep slide but sharply recovered. Year to date, WORK advanced roughly 53%, while ZM staged an impressive rally of 144%. Let’s take a few steps back and look at how both companies have done. This could play to ZM and WORK’s advantage. Some companies say they could continue to keep many employees at home, as they’ve seen the benefit of that during the lockdown. There’s a debate right now about how much of the world stays in remote work once the pandemic fades. Investors might want to listen carefully to the companies’ respective earnings calls for the chance to learn more about how they plan to position themselves if the economy returns to normal. These companies’ platforms might end up as supplements to office-bound work, or they may actually redefine the future of the workspace. Something to think about as the world gradually reopens is if the heightened demand for virtualization will last. We’ll find out more as ZM reports Q1 earnings Tuesday after the close and WORK reports Thursday after the close. Both may have benefited immensely from the lockdown as people, businesses, and schools relied on their platforms to go about their day-to-day operations.
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