The dynamics of work are changing. More people are working partially or fully remote than ever before, and the shift to a hybrid work environment is only expected to ramp up in the years ahead. In this segment of Backstage Pass, recorded on Oct. 13, Fool contributors Brian Withers, Rachel Warren, and Trevor Jennewine discuss five stocks that investors should consider to capitalize on these trends.
Brian Withers: All righty, let’s move on. We’re going to continue this discussion, but take a little turn here. Companies are now trying to deal with the hybrid workplace [laughs] and their people are starting to get back in the office and some people are still stuck at home. I saw Amazon just posted that they are allowing employees to work remotely permanently.
Not just for the foreseeable future but permanently, and so as this hybrid workplace gets back up and going we’re throwing people together and teams into new situations and possibly new tools or using old tools in new ways. What does the work landscape look like in the years ahead? What companies, and I’ll take two off the table: Zoom and Fiverr, not named Zoom and Fiverr, that could benefit [laughs] from this remote work and what the landscape looks like. Rachel, why don’t you go first.
Rachel Warren: No, I love this question. I personally think it’s going to be going more remote, more hybrid in the years ahead. I know I speak from my own personal experience, going remote has been such a life-changing thing. I worked in the legal field for quite a number of years before transitioning to remote work. As a remote worker it has allowed me to be location-independent, and I think that’s something a lot of people like.
I definitely think it’s going to be moving more in that direction, and I actually found there’s estimates that say that up to 70% of workers will be working remotely at least five days a month by the year 2025. That’s basically one workweek out of every month in not even four years from now. If I had to name two companies that could benefit from these remote working trends; and I can’t name Fiverr or [laughs] Zoom. The first one I picked was [laughs] Upwork (NASDAQ:UPWK) which is like Fiverr, but not quite, a different company. Actually I think it’s a really interesting company, but I was doing a little research and Upwork will regularly release these remote working surveys that it does.
One of its most recent ones was entitled Upwork’s Future Workforce Report 2021. It surveyed all these different people, companies, and they found that nearly 30% of respondents will be fully remote in the next five years. Also in the report, it said that 71% of hiring managers plan to sustain or increase their use of freelancers in the next six months. The freelancing market is booming, and it’s a huge aspect of this push in the remote-working world. Also that remote work has changed many management practices. According to the report, 67% of businesses reported that there were many more changes to long-term management practices than in a normal year.
Companies are changing the way they are doing business. They see how employees are very much realigning what they want in this new era of work that we’re entering, and I think management is seeing that they have to go with that to be able to attract the talent that they want. Upwork as a business, is doing very well. In the second quarter of this year their revenue grew 42% year over year, so gross service volume, which is funds that are processed through the platform, jumped 50% year over year.
Last I checked Upwork’s stock was up 70% from the beginning of this year. Just performing really well, which I think is not surprising given the environment we’re in.
The other stock I think that could benefit from this trend and that’s a little bit of a different side to this, is Shopify (NYSE:SHOP). The reason I picked Shopify is you think with so many people working from home it’s really easy to shop from home too, and Shopify is a company that is a leading provider of the platform tools and services that e-commerce companies worldwide used to run their businesses.
I think that they are really ideally poised to benefit from that. I think Shopify stock the last I checked was up somewhere around 30% year-to-date. The company’s revenue was at 57% in the most recent quarter, it’s just a stellar quarterly report. I think if any members are interested on benefiting from this jump in remote work, those are two interesting ways to play off of that, both from the remote-working platform of Upwork and then Shopify which has benefited both from the work-from-home trend and the e-commerce boom.
Trevor Jennewine: Those are both great picks especially the way you put Shopify there, I think that makes a lot of sense. I’m going to give two ideas as well, and both of mine are going to be cybersecurity companies. The first one is going to be Zscaler (NASDAQ:ZS). Traditionally, enterprises have approached network security like this. They keep all their data on-site in some centralized data center. All of their employees which show up to the office every single day they’d be there from 9:00-5:00 and they do their work on corporate devices, and so it was very easy to build a firewall around that perimeter to secure all of that sensitive data.
Then if anybody was working outside of the central hub there, they’d use something like a VPN or a virtual portal network to portal in to that corporate network. That worked well in the past, but there are a few reasons that that architecture doesn’t really work anymore. The first one is cloud computing, so a lot of software is being delivered through the public cloud.
I’m sure we’ve all heard lots of different software-as-a-service companies, Shopify is a great example.Lots of software is being delivered from the public cloud now, so it’s not stored on those data centers that are on-site but the other big driver is remote work. More people are accessing corporate networks from remote environments and that might mean from their home or it might be from the Starbucks down the street, but in both cases they are using typically unsecured personal devices and they’re accessing the corporate network from unsecured public networks, whether it’s at home, or the coffee shop down the street.
That creates an opportunity for hackers. These vulnerabilities create opportunities for hackers to gain access to those devices, to corporate networks. To solve that flaw or fix that problem, Zscaler built its own massive global network across 150 plus data centers around the world. It’s architecture is called a secure access service edge, and all that means is that it combines networking as a service with network security.
Zscaler clients, rather than logging in directly to the corporate network, they first connect to Zscaler’s network. The web traffic goes through Zscaler’s network, Zscaler inspects all of that traffic and enforces security policies, and then forwards the traffic onto wherever it’s going, and that could mean to the public cloud, it could also mean to internal corporate resources. But the big picture is by using Zscaler’s global network rather than forcing all of that data back through a central hub that’s maintained by a single organization.
You get better performance, applications load more quickly, but you also get better security. Zscaler inspects lots of traffic every single day, so it sees lots of different threats, and that helps it learn what to block. It helps train its AI models to be more effective every time, so it becomes increasingly effective in blocking those threats. The fact that it’s operating on that global scale, it’s looking at way more traffic than any enterprise could ever look out on their own, I think that’s what separates it and it is now more necessary than ever because more people are working remotely.
Then building on that idea, Okta (NASDAQ:OKTA), the cybersecurity company and Okta specializes in identity and access management, and that’s a branch of cybersecurity that essentially seeks to ensure that the right people can access the right technologies at the right time. That’s the way management explains it.
Okta has a massive network of integrations; it integrates with 7,000 different technology services, you might use Okta to access Microsoft 365 or Amazon Web Services or Salesforce or communication tools like Slack and Zoom. But essentially, the Okta identity cloud allows administrators to enforce contextual access policies, when you log into those applications, services or technologies, Okta looks at your device, the network that you are using, the location you’re coming from, who you are as a user, also a bunch of other things and it takes all of those variables into account to determine whether or not you are who you say you are, so first authenticates you.
Then it matches that against how your administrators have set up access permissions. Are you actually authorized to access the resources you’re trying to access? It puts identity at the center of access. Again, like Zscaler, this company sees a lot of log-in attempts every day, and as its network grows, it collects more data and that creates a benefit for everybody that’s using Okta, because the company list of threats grows over time, so it’s able to block those threats more effectively than you would by not having that access to the massive amounts of data that Okta does. I think cybersecurity in general is an industry that will do well as remote work becomes more popular.
Brian Withers: Yeah, I love those picks, Trevor. Certainly Okta, as I was in the corporate world, as a user and an employee of multiple different systems during the day, Okta provides a single sign-on for those users, where you don’t have to remember all your passwords to all your different systems and it keeps them linked up as maybe one requires a password change every 90 days, one every 30 days. One has this password configurations, whereas another system and you don’t have to keep track of all that. Okta helps simplify that for the employee too.
Definitely, Rachel, I’m going to piggyback on some of your stuff. I think the world is going to be more remote, more hybrid. The genie is out of the battle and some portion of employees work from home prior to coronavirus. Now, many more have experienced it and whether or not they like it, there is certainly an understanding of the benefits and how challenging it is potentially to be remote and work remotely and collaborate with others. I’m going to go with Atlassian (NASDAQ:TEAM), ticker symbol TEAM, and the fact that the ticket is TEAM tells you a little bit about their mission.
They are a software company that’s focused on getting the best out of teams everywhere, and that’s Brian’s way. It’s not exactly what its mission is, but that’s how I remember it. They have a ton of different software modules that allows teams to collaborate, whether it’s with information technology projects to deliver new software products to their teams or marketing teams planning a marketing campaign. Any different segment of the business has to collaborate with others to get things done. It’s just the way things happen.
Atlassian has a tremendous set of tools to do that all throughout, whether there’s pre-product launch or supporting products after their live. More and more, having this general communication system and system of accountability, where people know what they’re supposed to do, when it’s supposed to be done, who’s doing it, and whether that person needs help to get that done. That’s become more and more important as we can’t rely on sticky notes on whiteboards as a consistent way of getting folks attention in the office. Atlassian’s my play there. I like that one.
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