The list of companies allowing for work-from-home -- some of them saying remote work will be forever -- continues to grow. Additionally, a record number of new business applications were filed in the U.S. in 2020, peaking at nearly 1.6 million during the third quarter (nearly double the number in 2019) according to data from the U.S. Census Bureau. Many of those small business applicants were people looking to fire up a self-employment side-gig from home.
Put simply, the work-from-home movement looks like it's here to stay.
Three companies to bet on because of their connection to the trend are salesforce.com (CRM -3.59%), Pinterest (PINS -0.83%), and Wix.com (WIX 0.18%). Let's find out a bit more about these three top stocks in what has become a work-from-home industry.
1. Salesforce: Building the platform for "the future of work"
Salesforce is best known for its core customer relationship management (CRM) software, but as it was a pioneer of cloud computing (a service handled at a remote data center and delivered via an internet connection), it has some built-in work-from-home capabilities already.
But the enterprise software company's founder/CEO Marc Benioff is doubling down on these efforts, calling the remote work movement "the future of work." And to that end, the company has set in motion its biggest acquisition ever, that of virtual collaboration leader Slack (WORK). Salesforce has a history of acquiring high-growth software companies and plugging them into its own ecosystem, but Slack will be different. The collaboration software will become the default interface for the Salesforce Customer 360 platform, creating what Benioff and company hope will be a new operating system for businesses centered around customer data and team collaboration -- all from the comfort of home or some other out-of-office location, of course.
Salesforce's move to buy Slack sent shares down some 20% from all-time highs. Many investors simply aren't comfortable with the company's acquisition-hungry ways, and the issuance of new stock to pay for the Slack deal could dilute current shareholders if the remote work takeover doesn't pay off. However, Benioff and his top team have a history of making the purchase of smaller peers add up to a greater sum than the individual parts. Salesforce's free cash flow per share is up over 2,200% over the last trailing 10-year stretch, even after accounting for new shares issued to pay for a steady pace of acquisitions.
Still, other investors worry that Salesforce-plus-Slack will bring the software firm into closer competition with the likes of Microsoft (MSFT -1.43%) and its suite of remote work tools. But I believe that was always the plan, as Salesforce has stated its goal to become one of the largest software companies around. It's well on its way, and I think the bet on work-from-home will be a prescient move. After the pullback in Salesforce shares, I remain a buyer.
2. Pinterest: Marketing and search for a new work-from-home crowd
Pinterest has come a long way in a short period of time. Shares of the visual search and social media company are up nearly 200% since their public trading debut in the spring of 2019 as the number of users -- and therefore revenue -- continues to climb. The pandemic is only hastening the monetization of the platform.
Pinterest's last quarter speaks to the dramatic increase in activity on the site over the last year. Monthly average users spiked 37% higher year over year to 442 million worldwide during the third quarter of 2020. And as more users and active site usage make advertising more valuable (the way Pinterest generates income), average revenue per user (ARPU) also went up 15% during the period. But at just $1.03 per user, ARPU has a lot of room for further improvement.
This is why the work-from-home movement could be so powerful for Pinterest. Small businesses and a large crowd of aspiring entrepreneurs without a brick-and-mortar storefront are tapping social media to reach new audiences. All of those new "Pinners" are making a new place for these work-from-home start-ups and other marketers to reach potential customers, and creation of virtual "catalogs" of products and services on Pinterest is thus on the rise as well. Plus, Pinterest itself has been a champion of the movement, even canceling a big San Francisco office lease last summer since the majority of its workforce could be working remotely for the foreseeable future.
No doubt Pinterest will come up with new ways to grow its social and visual search platform in the years ahead, and a remote workforce and self-employment movement will only help its cause. The company is also turning a corner on the bottom line and is profitable on an adjusted basis (excluding share-based compensation and the above-mentioned lease termination). Shares trade for a premium 29 times trailing 12-month sales, a price tag that assumes double-digit percentage growth for the foreseeable future -- but with the economic trends favoring this company, I think it's a fair price given Pinterest's potential in a new digital age.
3. Wix.com: The other side of the same self-employment-from-home coin
Similar to Pinterest, Wix has also benefited from a new self-employment and entrepreneurship boom. The company specializes in website building and management, as well as a suite of tools for a range of e-commerce needs like payments, shipping, and design work. In a remote work world, demand for Wix's services has accelerated.
From aspiring retailers to bloggers to professionals looking to start a consultancy business, Wix is attracting all sorts of attention. The company expects full-year 2020 revenue to increase at least 28% from 2019 to $972 million, up from a 26% growth rate in full-year 2019. Additionally, this is a highly profitable software firm. Free cash flow is expected to be at least $122 million in 2020, implying a free cash flow profit margin of about 13%.
Given that Wix is still spending heavily to support its growth initiatives, this is a respectable margin. And as for its growth, the company is expanding in new areas to support a growing global digital commerce industry. Recent highlights include the launch of Wix Capital (which invests in digital economy start-ups), its web design education program arriving in Europe to support developers utilizing the Wix platform, and the enablement of installment payments (through lender partnerships) for merchants selling products through a Wix website.
Wix's continued growth will hinge on its ability to continue adding website and premium services subscribers in the years to come, but remote work bodes well for this internet company. And given its current trajectory, a price-to-trailing 12-month sales ratio of just 13 makes this small-ish firm (market cap currently at just under $14 billion) look like a reasonable value.