Our theme of Work From Home Stocks has underperformed this year, declining by about 10% since early January, compared to the S&P 500 which is up by about 6% over the same period. The sell-off is likely driven by higher rates of vaccinations in the U.S. (over 2.5 million doses are now being administered per day) and a broader rotation from high-growth stocks to more value and cyclical names. That said, we think these stocks remain a good long-term investment for a couple of reasons. Firstly, the work from home trend appears to be here to stay as companies are likely to allow workforces to operate remotely for a while, even after vaccinations. Companies such as Twitter, Facebook, and Shopify are giving employees the option of permanently working from home. Moreover, with the broader trend of greater digitization, these software companies which are focused on connectivity, collaboration, and cybersecurity, should stand to benefit. Within our theme, Slack Technologies has fared better than its peers, declining by just about 4% year-to-date. On the other side, Okta has been the worst performer, declining by about 16% year-to-date.
[11/12/2020] What The Vaccine Means For WFH Stocks
Work and learn from home stocks have had a solid run this year, as Covid-19 drives demand for connectivity, collaboration, and cybersecurity-related software. For perspective, our indicative theme of Work And Learn From Home Stocks is up by over 190% year-to-date on an equally weighted basis. However, a Coronavirus vaccine is looking like a real possibility in the coming quarters, following the surprisingly strong efficacy data for Pfizer’s PFE vaccine candidate which was released earlier this week. So what does this mean for work from home stocks? While we believe that demand will hold up for these companies in the long-run, investors could re-think valuations in the near-term and more volatility is to be expected. For example, Zoom – one of the biggest beneficiaries of the WFH trend – has dropped 17% since the vaccine news, while DocuSign is down by about 10%.
Although it’s likely that a vaccine will become available to the general public by early next year, it could take at least a year or two years for the global population to get vaccinated considering manufacturing and distribution challenges. Moreover, the trend of working from home appears to be here to stay even post the pandemic, as companies look to cut costs, access a larger base of talent, and give employees more flexibility. This should ensure that demand holds up in the long-term. Twitter, for example, has indicated that its employees can permanently work from home, while Facebook expects about half of its workforce to work remotely within the next decade. Additionally, most of these remote collaboration and communication players have business models that are subscription-based, with some level of switching costs involved providing them with some demand visibility.
[Updated 11/2/2020] With Covid Cases Surging, Should You Revisit Work From Home Stocks?
The Covid-19 pandemic has forced people to increasingly work and learn from home, causing surging demand for connectivity, collaboration, and cybersecurity-related software. Our indicative theme on Work And Learn From Home Stocks is up by almost 200% year-to-date, compared to the S&P 500 which is up a mere 1.5%. Although the theme was impacted by the big sell-off in the market over the last week, declining by about -8%, it’s likely to recover quickly considering that Covid-19 cases have been surging in the U.S. in recent weeks, potentially calling for greater restrictions and stay-home orders. Zoom (NASDAQ: ZM) has been the biggest driver of the theme’s returns, rising by almost 580% year-to-date. On the other side, Slack’s (NYSE: WORK) performance has been more muted, rising 14% this year. Below is a bit more about the companies in our theme.
Zoom has emerged as the video conferencing platform of choice through the pandemic, thanks to its easy user interface and simple sign-up process. The stock has gained almost 580% year-to-date although it declined by about -10% over the last 5 trading days.
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DocuSign offers e-signature solutions that enable companies to sign and manage contracts and agreements digitally, avoiding a time consuming and inefficient manual process. While the stock has rallied 173% year-to-date, it declined -8% over the last 5 trading days.
CrowdStrike CRWD is a cybersecurity player that offers a cloud-delivered endpoint protection platform, which relies on lightweight software running on the customer’s servers or laptops. The stock is up by 148% this year, although it is down by about -9% over the last 5 trading days.
Okta is a cloud security company that provides identity and access management tools that enable users to securely access cloud-based applications from various devices. The stock has gained about 82% this year and is down by about -4% over the last 5 trading days.
Slack Technologies is best known for its collaboration platform that is positioned as an alternative to email. However, the stock has seen pressure in recent months, as Microsoft’s MSFT rival product Teams has been gaining ground, thanks to its massive customer base. Slack stock is up by about 14% year-to-date and is down by about -11% over the last 5 trading days.
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