3 Stocks for the New Economy: Remote Work Stocks with Growth Ahead
The pandemic decimated many sectors of the U.S. economy. Yet there was a silver lining in the dark cloud of COVID-19.
America’s workforce had to change. With the virus sweeping the country, offices shut down and white-collar work went remote.
The upshot? America’s workforce proved tremendously resilient. Productivity soared (it’s estimated America notched three years worth of normal productivity gains in 2020) and the economy rebounded even while 70% of white-collar workers remained working remotely as of May 2021.
But even as America moves beyond lockdowns, a rift is brewing between management and their workforce: “suits” are pushing for workers to give up remote work life for a pre-pandemic office life.
The workers themselves have a different idea entirely.
According to a Bloomberg/Morning Consult survey, nearly 40% of respondents said they’d consider quitting if their bosses did not allow them to work remotely at least part time!
Remote Work is Generational Warfare
Make no mistake, what you’re witnessing is the next front in generational warfare over the future of work itself.
Employers have benefited tremendously for the past 50 years as employee-friendly benefits like pensions and career-long employment have been curtailed. At the same time, workers have become more broadly skilled: moving from a workforce in which individuals have hyper-specific specialities to one in which many people move across several professions throughout their careers.
The result: as employment certainty decreased and employee skills increased, the on-demand economy of freelancers, contractors, and side-hustlers rose.
At the center of these shifts in employment trends stand Millennials and Generation Z. These cohorts have grown up in an era with more transient employment and distrust for employers. For digitally savvy younger workers, full-time remote work is just a logical extension of their working careers… and a desired one at that.
The pandemic might have accelerated the adoption of remote work and alternative work arrangements, but the trend is likely here to stay.
Put in that context, the growth of remote work during the pandemic was a one-time event that unleashed trends that had been building for decades.
With the labor supply at historically tight levels (there are a record 9.5 million job openings across America today), employers not offering remote work options will remain at a disadvantage when attracting younger workers.
So while many investors have sold off leading “work from home” stocks from their recent highs, our belief at Millennial Money is that the remote work trends unleashed by the pandemic will last for decades.
Today we’re highlighting three stocks at the forefront of this new economy. These companies are leaders in freelance and remote work. While growth rates will fall from their elevated 2020 levels, we believe each will look like a no-brainer investment a decade from now as demand in each of these industries continues with the growth of remote work.
1. Upwork will lead the freelance revolution
- Upwork (NASDAQ:UPWK)
- Price: $51.79 (as of close Jul 30, 2021)
- Market Cap: 6,609,273,502
Why buy? A leading platform in the $1.2 trillion freelance economy
Remember when freelance and contract work was reserved for low-value tasks? Well, all that’s changed thanks to the tremendous shift in the American economy.
There’s a freelance revolution afoot and last year Upwork found that 36% of the U.S. workforce performed freelance work over the prior year and contributed $1.2 trillion to the economy!
In fact, the most in-demand skill on Upwork’s freelance marketplace is machine learning, which pays engineers on average $105 per hour (or more than $210,000 per average work year).
Per Upwork, 73% of its freelancers have college degrees and 50% of Fortune 500 companies are clients.
It’s clear that businesses and freelancers are embracing the opportunity Upwork represents, but early-stage investors are increasingly taking notice of the company’s potential.
Upwork went public at an offering price of $15 per share in 2018, and the stock traded below its IPO price throughout 2019. However, the pandemic sent Upwork’s stock into overdrive and shares exploded 224% last year!
Upwork’s stock might have been boosted by being classified as a pandemic stock, but that’s due to a fundamental misunderstanding of its business model.
While the pandemic might have accelerated the long-run trend of an on-demand workforce, it’s still in the initial stages as Millennials continue to define work on their own terms.
Management expects growth to further accelerate this year, its second consecutive year of accelerated revenue growth.
|FY ‘17||FY ‘18||FY ‘19||FY ‘20||FY’21E|
|Revenue||$202.6 M||$253.4 M||$300.6 M||$373.6 M||$485 M|
Source: Upwork 10K/Q1 guidance.
Like all stocks, Upwork comes with risks. First, the company’s valuation is near all-time highs due to its stock rally: shares now trade at 18 times sales while the company remains unprofitable. Additionally, other companies are aggressively growing in this highly coveted space, including stock No. 3 below.
However, Upwork stock still has considerable upside. In addition to being in a long-term secular growth market, Upwork has carved out a niche as being the freelance site for professionals. Upwork’s platform is one of the first places corporate America goes for top-notch talent.
Despite its recent stock acceleration, Upwork remains a mid-cap stock with a $7.4 billion market cap. Simply put, the company is tiny considering it will be a critical piece of the long-term shift to on-demand talent sourcing. Wall Street might consider Upwork a pandemic stock, but the long-term trends are just beginning.
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2. Zoom isn’t just a stay-at-home stock
- Zoom Video Communications (NASDAQ:ZM)
- Price: $378.1 (as of close Jul 30, 2021)
- Market Cap: 112,281,272,082
Why buy? Investors missing its long-term story
In the eyes of the market, Zoom is the embodiment of the stay-at-home stock. Last year shares exploded more than 700% before a drop that left returns at “only” 396% in 2020.
Surprisingly, Zoom’s meteoric rise has mostly been supported by its financial performance. Revenue increased 325% last year to $2.7 billion and EPS exploded 2,400%. (Admittedly, the latter is from a low base of $0.09 in the year-ago period to $2.25 last year.)
Understandably, Zoom sold off late last year as the pandemic news improved.
But here’s the deal: Zoom isn’t just a stay-at-home stock.
Look no further than last quarter’s results for proof. You’d expect Zoom’s growth to reverse as Americans headed back to the office. Yet although the company did see a deceleration from last year’s insane growth rate, Zoom’s revenue increased 191% from the year-ago quarter to $956 million.
The company expects growth to continue, guiding for full-year revenue to increase to $3.98 billion at the midpoint, 50% growth from last year. Shares have resumed their upward trajectory and have increased approximately 15% year-to-date.
Admittedly, Zoom will continue to be a volatile investment and the prospects of 700% one-year returns are likely off the table. Even after last year’s sell-off, the company has a massive $114 billion market cap, or approximately 36 times trailing 12-month sales. If the company misses its strong growth targets, shares could sell off like they did late last year.
However, investors are missing the long-term story in thinking Zoom is simply a pandemic stock. The truth is that Zoom’s video conferencing software will be mission critical for a hybrid office-based and work-from-anywhere workforce. The long-term growth drivers for Zoom stock remain firmly in place.
3. Fiverr is primed for growth
- Fiverr International (NYSE:FVRR)
- Price: $248.91 (as of close Jul 30, 2021)
- Market Cap: 9,494,169,151
Why buy? Growing market share at an incredible rate in freelance work
Created a decade ago as a way to source and find gigs that paid $5 (hence its name), Fiverr has expanded its offerings to become a critical competitor to Upwork’s freelance marketplace. The on-demand workplace is still in the early stages, but it’s increasingly becoming a duopoly between these two marketplaces.
Fiverr has one critical advantage over Upwork: its side-gig background lives on and the company offers gigs for all skill levels across nine categories (aka verticals) including graphic design, tech, and business, while Upwork specializes in professional skill sets.
As a result, the barriers to entry for new freelancers is lower on Fiverr and has resulted in a faster growth rate than Upwork. Fiverr’s revenue increased 77% in the last fiscal year.
Look for growth to continue as the shift to on-demand work continues and accelerates. In May, Fiverr announced that since its founding, freelancers have collected more than $2 billion.
However, the press release also noted that half of this total was collected in the last 15 months alone.
Fiverr might be the best-performing stock you don’t know about. Last year shares jumped 730% (move over, Tesla!) and have followed that up with another 23% gain this year!
It’s understandable why investors might think they’ve missed the boat on Fiverr stock, considering its price-to-sales ratio of 38 times makes it more expensive than even Zoom. However, both suffer from the perception that they are stay-at-home stocks and will see growth reverse as the world returns to the office.
That said, in-the-know analysts know better when it comes to Fiverr and are expecting a minor growth deceleration to 62%. In fact, the current labor crunch will benefit Fiverr as businesses increasingly look to outsource critical tasks they can’t provide in-house.