Prior to 2020, remote work was a niche prospect for most people. However, since the Covid pandemic, we saw a forced acceleration and adoption in this style of working. Now, despite many companies having returned to the office already, and even tech companies such as Amazon (AMZN, Financial) and Apple (AAPL, Financial) urging workers to return to the office so that the managers have something to justify their paychecks, there has been substantial pushback as many employees find that they work more efficiently from home and don't have to waste time and money commuting.
Amazon employees even reportedly created an internal Slack group with over 16,000 members and over 5,000 employees signed a petition as part of the effort to oppose the return to office plan. The employees are not just against the idea, but are more against the way Amazon has handled the issue. For example, the company prides itself on being “data driven” but cited no data to back up its return to office plan. Employees often cite higher productivity and better work-life balance as reasons for choosing remote or hybrid work. If the company wants them to return to the office, they reason, it needs to provide actual supporting data.
Given the many benefits of remote work, I think remote and hybrid work models will continue to be popular, despite management pushback. Thus, in this article, we will look at two of my favorite stocks which are poised to benefit the continued hybrid and remote work environment; let’s dive in.
1. Zoom Video Communications
Zoom Video Communications (ZM, Financial) is arguably the most obvious “remote work stock," as its platform saw a major acceleration in usage during 2020. Its platform name even became synonymous with all types of video meetings, with the common phrase “let’s hop onto Zoom” becoming standard from work to school environmments and beyond.
This is what Warren Buffett (Trades, Portfolio) likes to call a “share of mind” with the consumer, which is one signal of brand power. For example, Alphabet's (GOOG, Financial)(GOOGL, Financial) Google has become synonymous with an internet search, which is another case of a high share of mind. Now of course Zoom’s core product has lots of competition from Microsoft (MSFT, Financial) Teams and even legacy platforms such as Skype. However, the company has expanded its products to create a “Zoom One” platform. This includes all the tools a team needs to run webinars and events, and it even includes an online whiteboard for collaboration. Given the growth in whiteboard/collaboation tools such as Miro, I believe this is a positive strategy.
For those workers who are in the office, Zoom has developed a “Spaces” package which effectively provides all the hardware needed for a room to fit out, including displays, microphones, etc. This is also a key growth market, as if offices are operating in a hybrid scenario with some workers remote they may wish to “dial into” physical meetings.
Zoom reported steady financial results for the fourth quarter of 2023. Its revenue was $1.12 billion, which beat analyst forecasts by $17.08 million and increased by 4.33% year over year.
Now of course this growth rate is pretty slow for a “growth stock” and a far cry from the blistering 325% growth rate achieved from 2020 to 2021. However, keep in mind that Zoom is effectively “standing on the shoulders” of its past quarters, and its overvalued price has come down a lot.
The business reported average monthly churn of just 3.4% for the fourth quarter. This means the vast majority of its customers are sticking with the platform.
Zoom has also continued to grow its enterprise customers by 12% year over year to 213,000. Enterprises (large organizations) are the most lucrative customer base, as they often high account expansion opportunities and high stickiness.
Zoom did still record a GAAP loss per share of $0.36, which missed analyst forecasts by $0.32. However, a positive is on a non-GAAP basis, it had earnings per share of $1.22, which beat analyst forecasts of $0.40.
Zoom also has a solid balance sheet with $5.4 billion in cash and short term investments versus total debt of just $96.5 million.
Zoom trades at a price-sales ratio of 4.8, which is over 84% cheaper than its five-year average.
The GF Value chart estimates a fair value of $396 per share and thus the stock is “significantly undervalued” at the time of writing.
The second stock I want to highlight, Smartsheet (SMAR, Financial), is not an obvious hybrid or remote working stock, but that is why it is valuable. When the whole team is in the office, collaboration and alignment is fairly easy. However, as teams become more dispersed, knowing who is working on what and if they need help is vital.
This is where a platform like Smartsheet comes in. It offers team collaboration as well as project management. In addition, its platform can be used to effectively replace simple spreadsheets for a variety of tasks from setting up an IT helpdesk manager to organizing files.
Smartsheet reported solid financial results for the fourth quarter of its fiscal year 2023. The company reported revenue of $212 million, which increased by 35% year over year and surpassed analyst estimates by $6 million.
The business also reported strong growth in its enterprise customer Annual Recurring Revenue (ARR), which increased by 40% to $260 million. Enterprise customers are immensely valuable, as they offer large contract sizes and greater expansion opportunities. Given Smartsheet’s platform scales with the number of employees, the cost looks “cheap” for organizations ($7 to $25 per employee, per month), however this can easily scale.
Smartsheet reported its number of customers with $100,000 or greater in ARR rose by a solid 36% year over year to 3,206.
The business reported an operating loss of $44.4 million for the quarter. This may seem terrible at first glance, but it was actually an improvement over the $52.1 million loss for the prior-year quarter.
Smartsheet has a solid balance sheet with $456.4 million in cash and short term investments versus total debt level of just $66.8 million.
Smartsheet trades at a price-sales ratio of 7.65, which is over 50% cheaper than its five-year average.
The GF Value chart rates the stock as "signficantly undervalued."
Both Zoom and Smartsheet are two great companies that are poised to continually benefit from the hybrid work environment. Zoom is the more obvious remote work pick, but the company is facing slowing growth due to rapid growth over the pandemic and heavy competition. On the other hand, Smartsheet is less well known as a remote work stock, but should continue to grow rapidly no matter how the work environment evolves.