Changes From Coronavirus Will Be Long-Lasting — And Benefit Zoom and Slack
March 6, 2020
It’s clear that few of us in North America paid much attention to the coronavirus when it was “over there” in China and other parts of Asia.
Yet, it’s clearly in all our minds after the last couple of weeks.
Many large employers in California and Washington are now requiring their employees to stay at home for work. That will likely expand to many other states in the coming weeks.
Hopefully, over the summer (when the virus subsides), there will be some vaccines which emerge to deal effectively with it.
Even if that occurs though, it’s my view that there will be some permanent effects of this outbreak. One is that a general tech theme of “increased remote work” will accelerate. It will not simply go back to its pre-outbreak growth level.
Among technology stocks, my favorite ways to express my view is through owning the stocks Zoom Communications (ZM) and Slack Technologies (WORK).
Both are necessary tools for any remote worker to “keep in touch” with the culture and sense of what’s happening back at the physical office — Zoom through virtual meetings and Slack through its messaging.
Their software was best in class before the crisis but it will be “must have” for many in the months to come. That’s why, I don’t think you can use backward-facing price-to-sales multiples to assess their valuations. You have to look forward to their addressable markets and how their stocks will react to an upward inflection in their growth rates.
Both stocks have increased over the past couple of months — Zoom much more than Slack. I think Slack will increasingly be seen by investors as a key beneficiary of the accelerating remote work trend, just as Zoom has already been.
There’s another reason I like both names. Pricing Power.
Last week, I was chatting with one tech CEO friend. Unprompted, he brought up their use of Slack. “I think they’re dramatically underpriced. We rely on their software. I was talking with my CFO a few weeks ago and asked if we’d keep paying Slack if they tripled their prices overnight. He paused, nodded and said we probably would.”
I suspect the same is true for Zoom — especially after they come to rely on both even more in the coming months. What happens to stocks when they increase prices — repeatedly over time?
[Disclosure: Affiliates controlled by Eric Jackson hold long positions in ZM and WORK]