Twenty years ago, it would have been difficult to work from home, as only 4% of Americans had high-speed internet, and Windows-based Wi-Fi wasn't available until 2001. Today, knowledge workers with a Wi-Fi-connected laptop can be productive from just about anywhere. Even employers are starting to realize the benefits of working remotely, such as improved productivity and employee retention.
Whether workplaces will be totally virtual by 2040 or employers will just be more accepting of remote arrangements, this trend is here to stay and these three companies -- Zoom Video Communications (NASDAQ:ZM), Slack Technologies (NYSE:WORK), and Okta (NASDAQ:OKTA) -- stand to benefit.
1. Zoom: When the meeting location is in the cloud
It was the year 2011, and Cisco Engineering Vice President Eric Yuan was tired of hearing customers complain about Cisco's WebEx video conferencing software. He worked to try to fix the issues, but eventually gave up on his in-house efforts. He left the company to build a superior video conference solution from scratch, and Zoom was born.
Since then, the software has become known as a product that "just works" and powers a business with a $540 million annual revenue run rate. Zoom's growth numbers are amazing (85% year-over-year last quarter), and net dollar retention figures astounding (above 130% for the last six quarters).
But what's even more exciting for investors is the huge opportunity ahead. Zoom sees 200 million companies globally (with 1.1 billion knowledge workers) as its potential market. Currently, it serves only 74,000 companies, less than 1% of what could be possible.
In addition to adding new customers, there's also an opportunity to expand its footprint within its current customer base. As of the third quarter of 2019, there are 546 customers who pay more than $100,000 annually, up 97% from the previous year. One large retail customer grew its user base from 260 individual users to the entire enterprise of 192,000 employees, with 2,000 conference rooms and 10,000 Zoom phones over the course of two years.
Although Zoom's price-to-sales ratio of 49 looks expensive (even compared to its software-as-a-service peers), its impressive growth rates, a superior product, and the goal of making virtual meetings better than in-person meetings should enable it to be much bigger by the year 2040.
2. Slack: Collaboration will always be cool
Are you a fan of email? If you are like most people, you know it can be an effective tool for communication, but most of the time it's just a time-waster.
I don't know of anyone that describes email as a tool that improves team communications and collaboration, but that's exactly how 87% of users view cloud-based instant messaging platform Slack. It doesn't just deliver messages in a more organized and useful way, but integrates over 1,800 apps, making it a central hub where users spend on average nine hours a day logged in and over 90 minutes actively using the tool. This is exactly the kind of software that makes remote employees more productive and feel more connected.
Launched a little over six years ago, Slack has taken relatively little time to make a name for itself, winning 105,000 paying customers, 821 of whom spend more than $100,000 annually.
Its growth has been impressive, racking up 60% top-line gains in its most recent quarter to reach $570 million in trailing 12-month revenue.
Many are worried about the company's future as it competes against Microsoft's Teams product (that is bundled with Office 365) or its hefty price-to-sales ratio of 26.5. But it has a solid leadership team, strong net dollar-based retention (134% last quarter), and an innovative culture that will keep its product on the cutting edge to power growth for years to come.
3. Okta: Protecting enterprises and simplifying access for employees
The job of the chief information officer (CIO) is getting harder all the time. Employees are using their own devices, getting subscriptions to the latest software-as-a-service tools that are being hosted outside of the company's secure data center, and corporate networks are under a constant threat of cyber attacks.
It's a wonder that any CIO can get a good night's rest. But this is where Okta shines. Its identity cloud product provides a single-sign-on for employees to access the applications that they are authorized to use while providing top-of-the-line security for employers.
Customers are flocking to Okta's identity cloud, and once embedded with the product, they often expand their relationship to take advantage of its broad range of products. It boasts 7,400 customers with 1,300 of those having annual contract values in excess of $100,000.
The total number of customers has doubled in the last nine quarters, which translates to an impressive 37% annual growth. Customers spending in excess of $100,000 grew even faster, taking only eight quarters to more than double. This is fueled by its impressive net dollar retention rates between 117% and 123% for the last 11 quarters.
The opportunity for Okta is enormous. The company estimated that its addressable market was $18 billion in its filing to go public from 2017, and with trailing 12-month revenues of $534 million, it has plenty of room to run.
Between projected revenue growth of 44% for the year ahead, and its large market, it should eventually grow into its lofty price-to-sales ratio of 32. Over the next 20 years, the need for Okta's essential security and identity service will only become more critical, as organizations become less dependent on physical offices as a place to work.