WFH Winners

Investment Analysis Clubs Saul’s Investing Discussions
1

A recent Gartner CFO survey indicated that 74% of companies plan to permanently shift at least 5% of their workforce remote post-COVID. With companies being forced to rethink their business processes, more and more are discovering that remote work is a viable and cost-effective alternative to on-site. (https://www.gartner.com/en/newsroom/press-releases/2020-04-0…)

Zoom users report a 24% reduction in business travel after using it(https://blog.zoom.us/wordpress/2018/05/18/zooms-impact-on-bu…) and an 85% increase in video usage. Although most employees will return to on-site once this is over, a ‘new normal’ will be established.

I found Buffett’s decision yesterday to sell all his airline holdings to be quite interesting in this regard. He doesn’t make short term decisions. He is quoted as saying “The world has changed for the airlines. And I don’t know how it’s changed and I hope it corrects itself in a reasonably prompt way”. A recent McKinsey US survey supports this, with 34% of consumers expecting to reduce international travel (https://www.mckinsey.com/business-functions/marketing-and-sa…).

This new remote working paradigm is a huge benefit to many of our SaaS companies.

-Collaboration software like Zoom and Slack, and to a lesser degree Atlassian and Smartsheets. Atlassian mentioned in their recent shareholder letter that they saw a 60% increase in cloud migrations vs last year. This echoes the comments of Satya on years of digital transformations being pulled forward. And Box CEO Aaron Levie has also noted that in his talks with Fortune 500 CIOs, they’ve noted that they are implementing a fundamentally different IT strategy in the past with more cloud.

-Datadog, Elastic, Splunk, or New Relic which focuses on helping companies to keep applications and systems running and operate at peak efficiency also benefit from increased traffic and shift to the cloud.

-Cybersecurity companies of all types should benefit: endpoint protection like CRWD, Identity Access Management like OKTA and PING, privileged account security like CYBR, network firewalls like Palo Alto, web access gateways like Cloudflare or Zscaler

-CDNs/edge-computing services like FSLY or Cloudflare benefit from increased traffic

-Some companies with high-touch, top-down sales processes that require large, up-front commitments and lengthy implementations like CRM, SAP, or WDAY may find it harder to operate in this environment

In general, a lot of the old economy companies will face many challenges, the pace of disruption has accelerated greatly. With years of digital transformations occurring in months, even companies who were slow or unwilling to change are suddenly finding themselves being forced to. Shopping is moving online faster than ever before, consumers are choosing to stream more rather than going to the movies, video-conferencing has become ubiquitous with people doing everything from marriages to parties to concerts on Zoom, telemedicine has gone from being niche to mainstream, and higher education is being forced to re-think how to justify increasingly high tuition as online learning becomes more popular.

Richard

50 Likes
2

“Zoom users report a 24% reduction in business travel after using it(https://blog.zoom.us/wordpress/2018/05/18/zooms-impact-on-bu…) and an 85% increase in video usage. Although most employees will return to on-site once this is over, a ‘new normal’ will be established. “

Before the crisis I’d fly every week for my job. I’ll never go back to that, human bodies aren’t built for that, it takes a toll. Jetlag, hotel rooms that 15 minutes prior to you had unknown occupants, catching countless flus and colds in airplanes and crowded airports. And that was all before COVID-19, now it’s on another level.

https://www.businessinsider.com/getting-sick-on-an-airplane-…

I can do my business with Webex or Zoom and travel at most 1-2 times a month for in person visits. If my job requires otherwise I will look for another job.

32 Likes
3

good point. I am managing budget in a Fortune 100 company. In the past, it is really hard to cut travel budget as most people view that as a bonus to their work, opportunity to tour other countries paid by company. Our CFO once said we paid too much for travel, should be cut by half. Now, interestingly, people automatically surrender travel budget and it makes me life so much easier. I really don’t mind to pay a video conference tool license fee, that is nothing compared to a trip.

22 Likes
4

Interesting stat that only 2% of CFOs think 50% or more of their workforce will remain remote.

Would think the actual number is going to higher. It’s from a CFO perspective so their are probably covering for themselves if they signed new corporate real estate deals for their company.

5

Richard,

This new remote working paradigm is a huge benefit to many of our SaaS companies.

In general, a lot of the old economy companies will face many challenges, the pace of disruption has accelerated greatly. With years of digital transformations occurring in months, even companies who were slow or unwilling to change are suddenly finding themselves being forced to.

I agree.

On other boards, in discussions of the SaaS companies you’ve mentioned, especially Zoom (ZM), I’ve seen lots of comments along the lines that “this is a temporary blip; in a few months when things go back to normal, they’ll lose business, and the price will drop.”

Those commenters are missing the big picture.

First, some people are underestimating how long COVID will affect our health and our behavior.

Laurie Garrett, a Pulitzer Prize-winning journalist, has been warning about major pandemics since her 1994 best seller The Coming Plague.” She expects that COVID will be a major problem for years. Her best case scenario is 36 months before a vaccine is developed and produced and distributed in large enough numbers.

During that time, she thinks that human behavior will change. “They’ll re-evaluate the importance of travel. They’ll reassess their use of mass transit. They’ll revisit the need for face-to-face business meetings.”

https://tinyurl.com/nytimesCovidPrediction

Garrett may be pessimistic, but her view has some credence. I see too many people thinking we can return to “normal” with limited or no consequence. That view may change in the near future, especially if a second wave of COVID hits.

For ZM, that means the business they’ve garnered is not just a temporary blip. It may be hard for some to imagine, but I can see new waves of people and groups looking to adopt ZM as COVID continues.

Second, what people considered “normal” was in some ways abnormal. As UMassHoops has noted, Before the crisis I’d fly every week for my job. I’ll never go back to that, human bodies aren’t built for that, it takes a toll. Jetlag, hotel rooms that 15 minutes prior to you had unknown occupants, catching countless flus and colds in airplanes and crowded airports.

Businesses should see that ZM can be more efficient and reduce the costs of business travel. Plus, using it will be better for employee’s health, thus reducing health care costs (or loss of productivity by those who work while sick).

This crisis has forced many changes; companies that plan to go back to the old models when we “return to normal” will struggle or not survive. Companies that adapt through ZM and other SaaS solutions will survive.

I hope the more optimistic projections for COVID recovery for all segments of society prove accurate, but regardless; the SaaS adoptions will remain and grow.

All the best,

Raymond

10 Likes
6

“I hope the more optimistic projections for COVID recovery for all segments of society prove accurate, but regardless; the SaaS adoptions will remain and grow.“

As a person that has businesses in more the one state I’m already adapting and thinking a very different business model going forward. From full service restaurants to much smaller spaces doing delivery and to go only. We will be developing our own app for ordering, going completely cashless.

Parts of society are going to change and those that adapt will succeed. I just have to figure out how to create a virtual reality cocktail lounge. Oh and I’m not kidding. :wink:

A bit off topic but I’m very worried about major communities built on the travel, convention and hospitality industry like Scottsdale, Vegas and Orlando. What’s going to happen to all those hotels, the restaurants, catering, event centers, casinos and the trickle down effect to everyone from contractors to convenience stores to taxi drivers.

Yea I’m starting to understand that we may not be able to live without Zoom going forward and thst should be reason enough to own shares in the company.

TMB

4 Likes
7

I am surprised at the smallish percentage of companies that will switch to much higher remote use. It might be noted that according to aSaul post one of the outstanding growth companies Crowdstrike was 75% remote even before Covid. I tihnk many bosses feel devalued by off site and will resist it even if it works better

1 Like
8

there is a lot implication here. My company on average grows 3% to 5% employees a year. In the past we had to built a new office building or leased one to house 600 more people every three years. Now,we are exploring not to add new space with % of people always working remotely in any given day, so even our office space is same we can handle a lot more people than before. We might see more and more employees working 3 days on site a week to deal with any face-to-face operation, while other two days work from home.

2 Likes
9

Vaccines need long periods of testing. Because unlike most drugs they are given to healthy individuals not to sick people who face risk from their disease. So the FDA is extra strict. Furthermore there is pressure to use the slow egg based method now used in flu vaccines
There is the possibility that Cvid 19 will mutate and make vaccines ineffective though I understand this is less likely with large complex viruses like corona viruses.
It will take a long time to make it available for everybody. Will they use a priority system giving it first to hospital workers and the elderly?

10

I am surprised at the smallish percentage of companies that will switch to much higher remote use.

It very much depends on the organization, but overall I’m not surprised. Just watching my own company go through this reveals two points.

First, one of the problems management has always had is measuring and valuing output. There is almost no consistent methodology that allows them to do this, MBAs notwithstanding (in fact, that’s often a detriment). As well, managers are no less prone to laziness or taking the easy route than anyone else, and the only thing managerial peers seem to agree upon wrt to measuring productivity is whether you can see the butts warming the chairs. Having workers you can’t see adds a potential point of attack should things go wrong, so there’s an aspect of CYA to account for.

The second is the expectation that people miss the social aspect of work. Being a loner who’s been remote for 15 years now, I couldn’t care less. But most people miss the day to day physical interaction. Management has gone to great lengths to have additional meetings over Zoom, daily “water cooler” meetings where you talk about anything except work. Part of this is to help people manage the change, to reinforce that the company is supportive through difficulties such as dealing with children at home, etc. These are positive efforts, but you can tell that the expectation is the current situation is temporary, and, with a few exceptions, most people and their managers can’t wait to get back to the office.

Initially I had thought it might be worth shorting commercial real-estate … if that’s a thing, I really don’t know anything about real-estate investing. Then I realized, not only do I not know anything about real-estate investing, I really can’t predict which way, if any, a change will go. A recession/depression will surely have a negative impact, but “normal” might end up looking exactly the same, especially if there is a working vaccine.

11

Thanks for sharing Raymond. I absolutely agree with your assessment and the author. I find her analogy to the societal impact that 9/11 had to be quite relevant.

Jwiest, my company has also made great efforts to place an increasing emphasis on mental health and re-creating the social aspect of work via collaboration apps. I think this has big implications on the digital health space. I personally have owned Livongo for a while based on their very strong financials and growth opportunity and just started a small position in Catasys today, which focuses on behavioural health.

This is a good article on the trend we’re seeing in the mental health space: https://www.statnews.com/2020/04/13/remote-mental-health-liv…

“Livongo said it saw a 140% increase in utilization of the behavioral health program in March compared to last September…Livongo users appear to be concerned about the cratering economy and ballooning unemployment numbers. Many of them are also struggling with substance abuse, interpersonal relationships, and parenting, said Jennifer Schneider, a physician who serves as Livongo’s president.” Omada and Ginger are seeing similar surges.

Here’s data from Ginger with some surprising stats: https://www.businesswire.com/news/home/20200409005169/en/New…

“69 percent of workers claimed this was the most stressful time of their entire professional career, including major events like the September 11 terror attacks, the 2008 Great Recession and others. Every demographic, including adults over the age of 55, rated COVID-19 as the most stressful time.” and they are turning more to virtual mental health services “38 percent of employees have tried a technology-based mental health service. Of this group, 40 percent have tried it within the last week (3/25/20-4/1/20), 24 percent within the last month and 11 percent within the last 2 months.” WFH blurs the distinction between our personal and professional lives and many have found it very hard to adjust, ultimately affecting their productivity - “62 percent of workers reported losing at least one hour a day in productivity due to COVID-19 related stress”, creating the incentive for companies to adopt services like these in ever greater numbers.

Hemant Taneja, an early investor in Livongo, wrote an excellent article on this for HBR: https://hbr.org/2020/04/how-big-tech-can-help-fix-u-s-health…

“As hospitals and ERs are flooded with Covid-19 patients, those with chronic conditions—including mental health needs–often have nowhere to turn. This is especially the case for the large portion of the population that does not have a primary care physician or a specialist. We must instead assure health consistently rather than treating people only when they are sick. This transition from “sick care” to “health assurance” — as we call it — would mitigate the negative second-order impacts of an overwhelmed health care system responding to a pandemic. Moreover, pivoting towards this model of care would increase positive health outcomes in normal times by ensuring that individuals receive proper care and thus avoiding preventable ER visits.”

I think LVGO stands to benefit even more than telemedicine services like TDOC. LVGO already partners with telehealth services like Doctor on Demand and MDLive for their behavioral health product, it is only one piece of the puzzle. LVGO provides the real-time data needed for better telehealth or in-person consultations. Without that, treatment is not as effective and saves providers money by only referring the patients who really need professional intervention based history.

Same thing with CGMs like DXCM. TDOC has a better telemedicine product and DXCM has a much better glucose monitor but they don’t answer the “so what” after patients get their blood sugar reading. Changing patients’ behaviour is essential to reduce costs and create a sustainable healthcare system long term with an aging population.

11 Likes