Citi analyst Walter Pritchard on Friday picked up coverage of four companies that provide communications and collaboration tools as opportunities for remote work expand.
The analyst launched Dropbox (DBX) and Atlassian (TEAM) with Buy ratings, while starting Zoom Video Communications (ZM) and Smartsheet (SMAR) with Neutral ratings.
“Shelter in place [and] work from home is likely to change how organizations prioritize workplace technology,” he writes in a research note. “While a focused set of technologies have likely seen greater adoption as a result of immediate Covid-19-related business priorities (remote access and certain security items), we expect teams that have been dispersed will look to augment their collaborative capabilities … Capitalizing on this activity, much of which comes initially through a free offering and general awareness, will be important to driving revenue through the balance of 2020 and into 2021.”
Pritchard writes that he looks for companies that can either go wide— significantly expanding users—or go deep, with the opportunity to increase revenue per user.
Zoom, he says, has a “wide” opportunity, while Atlassian offers a chance to go deep as customers increase spending per user and the company expands into adjacent markets. As for Dropbox, he thinks the company is a “relatively scarce asset” that could draw attention from new entrants into the collaborative software sector, pointing to both Salesforce.com (CRM) and Amazon.com (AMZN) as potential buyers.
Here’s a brief look at his thoughts on the four companies.
- Zoom “has quickly become a household name and is likely seeing significant benefit from a need to replace in-person meetings during Covid-19. We see a lot priced into the stock already ... We fear we may see a balance of re-open sentiment that could challenge some of the recent excitement around the stock, which trades at a meaningful premium.”
- Atlassian is “in position to go deep with its core development-centric users,” with potential to widen its base, possibly through M&A. Atlassian’s financial profile “points to sustainable growth efficiency with [an] attractive combination of revenue growth and margins.”
- Dropbox is “an underappreciated play on the wide content collaboration opportunity.”
- Smartsheet is a “significant greenfield opportunity” in “collaborative work management,” but is also in a “very crowded landscape.”
On Friday, all four stocks are trading higher, with Dropbox up 2.4%, Atlassian gaining 3.6% and Smartsheet climbing 1.4%. Zoom is up 3.9%, lifting its gain for the year to more than 150%.
