So-called 'work from home' stocks -- Zoom (ZM) - Get Report, Slack (WORK) - Get Report, DocuSign (DOCU) - Get Report and others -- have seen their valuations grow by tens of billions during the COVID-19 pandemic.
But the investment opportunity is far more expansive, and includes much more than just the best-known videoconferencing, cloud storage and productivity tools. That makes enterprise technology a key category to watch in the coming years, according to RBC Capital Markets analyst Alex Zukin.
The pandemic forced companies to adopt cloud tools en masse that may have otherwise taken years. And even as the pandemic eventually subsides, the work-from-home option will prove to be "more than just a fad," Zukin writes, with more companies taking up a location-agnostic work standard on a permanent basis.
A shift to "Work 2.0" presents a $500 billion market opportunity, by RBC's estimate, in which multiple names could benefit. Here are a few takeaways.
Videoconferencing tools saw the biggest immediate gains from the pandemic, with adoption increasing 163% compared to pre-COVID levels, based on an RBC survey. eSignature (+68%) and messaging (+62%) also saw significant gains. But cloud productivity suites -- namely Microsoft's (MSFT) - Get Report 365 suite and Google's (GOOGL) - Get Report G Suite -- remains the "single most important productivity tool," writes Zukin. Driven by cross-selling by the two largest players, spending in this category will continue to grow. Every player in the productivity and cloud storage space must pay close attention to category leader Microsoft. But upstarts like Dropbox (DBX) - Get Report could also gain share, given its large installed base of 600 million users and "demonstrated consistency in converting to paid accounts," according to Zukin.
Zoom Leads in Meetings
Arguably, no software has come to represent the work-from-home environment more than videoconferencing app Zoom. Practically overnight, routine work meetings (and social events as well) went virtual, and Zoom took a huge chunk of the gains. It's the "category leader" at this point, having distinguished itself with an easy-to-use product that easily integrates with other work tools, according to Zukin. Other solutions such as Microsoft Teams and Cisco's (CSCO) - Get Report WebEx have their advantages, given their ability to bundle videoconferencing with their other offerings. But Zoom, looking to hold its leadership position and keep up the growth, will likely make acquisitions in "filling out a UCaaS-type suite" -- a more comprehensive communications suite.
Disruptors On the Rise
Despite the dominance of Microsoft, Google and others in areas like productivity, there's still plenty of room for smaller disruptors to grab a piece of the market, according to RBC. A large majority of investors (71%) believe the space will give rise to new, large, scaled technology companies over the next decade "as opposed to seeing it remain fragmented as it is today, or seeing incumbent platforms like Microsoft and Google capture most of the value in the market," Zukin wrote. Private companies to watch include GitLab, Airtable, Loom and Lucid. In the nearer term, expect "institutional knowledge" to grow in focus among cloud providers -- tools, like Dropbox, that allow workers to easily access relevant old files and workspaces, could compete more heavily.