WFH Stocks - How They Respond To The Third Pandemic Wave

Over the past seven days, COVID-19 records have been shattered in many countries across the globe. The US is particularly hard-hit, with daily case numbers now tallying in at over 70,000. All the statistics point towards the pandemic gearing up for a third wave - the worst one yet. 

When the virus first hit the global economy, companies had to adapt - fast. They set up systems for telecommuting and invested in the necessary hard- and software infrastructure. 

Now it looks like remote work is here to stay. An October flash survey by S&P Global confirmed that almost two-thirds of organizations look to adopt distributed workforce models permanently.  

Unsurprisingly, these developments have resulted in a powerful performance of work-from-home (WFH) stocks throughout the year. Stocks of companies such as videoconferencing giant Zoom (ZM) have soared over 450 points - nearly 680% - year-over-year. At the end of June, Direxion successfully brought a pure-play ETF (WFH) of telecommuting providers to the market. 

With the pandemic wave now surging, the question is how the market will respond - in particular with a view towards WFH stocks. 

The S&P is Taking a Dive 

On Monday, Wall Street saw its worst day since September, with US stocks selling off all day.

The Dow closed down 2.3%, the S&P 500 down 1.9%. The tech-heavy Nasdaq Composite, which includes many WFH stocks, fared somewhat better, finishing down only 1.6%.

The reasons for this slump include political uncertainty (with the presidential election only eight days out and a stimulus package in limbo), the economic implications of rising virus numbers, and the anticipated earnings reports by big tech companies, including Microsoft (MSFT), Apple (AAPL), Google (GOOG/GOOGL), Facebook (FB), and Twitter (TWTR).

Amidst the tumble, WFH stocks did initially take a hit, but bounced back faster and stronger than other sectors. Here is a closer look at how five of the most significant remote working stocks are faring.

Atlassian, Inc.

Year to date, the stocks of Australian SaaS company Atlassian (TEAM) are up 67%. The company produces enterprise tools for software development, content management, and project management. Trello, a team collaboration and workflow management solution, has become widely used amidst the pandemic, as have development tools Jira and Confluence. 

Atlassian will release its Q1 2021 reports on October 29. Projections offer a strong outlook amid the approaching third wave of the pandemic, reflected by 14.5% growth over the last month alone. Estimates for fiscal first-quarter revenues tally in between $430 and $445 million. 

Analysts see Atlassian’s key strengths in the continuously increasing demand for its core cloud products from both new and existing clients, capitalizing on the massive workplace digitalization trend. Improved product performance and new offers like Jira Service Desk, Jira Ops and Bitbucket are also expected to drive quarterly revenues, putting the company on firm footing to profit from further pandemic waves. 

Twilio, Inc.

Shares of cloud communications provider Twilio (TWLO) are up 206% this year, making it one of the biggest winners amidst the economic shifts triggered by the pandemic. 

Following the release of its Q3 earnings report on Monday, October 26th, shares saw an uptick of 4%. The results reported far outperformed analyst expectations, which had predicted the stock performance peak earlier this month to be the last for a while. 

Twilio CFO Khozema Shipchandler put the solid results down to strong business performance across the board, particularly bolstered by gains in vertical markets like health care and financial services. With the pandemic situation set to remain grim, these trends are likely to continue. 

Zoom Video Communications, Inc.

Zoom (ZM) has become a household name since the beginning of the COVID-19 outbreak. The videoconferencing provider’s stellar rise in popularity is reflected by a YTD gain of over 653%.

While the outbreak lasts, Zoom is one of the safest bets in terms of stock performance. Analyses have found the company’s market performance to closely mirror case numbers. On Monday, Zoom benefited from increasing anxiety about a third wave. 

In addition, Zoom is set on innovation and product improvement. The company is stepping up its cybersecurity game by implementing end-to-end encryption for products even in its free tier. It also recently announced OnZoom, which will let organizations host paid events

Direxion Work From Home ETF

Finally, Direxion’s WFH ETF, launched in late June, tracks the Solactive Remote Work Index. Multi-themed, it focuses on providers of cloud computing, cybersecurity, online document management, and remote communications.

Since its inception, WFH has seen considerable highs and lows. Overall, it is up 10.5% since June. Analysts expect the prospect of an intensifying third wave to substantially benefit WFH ETF

While the ETF aims to consolidate stocks whose success promises longevity beyond the global health crisis, it has responded badly to positive outlooks in terms of public health. In late September, for example, it took a hit amidst speculations about the impending release of a vaccine. 

For the moment, though, with no vaccine in sight and the pandemic worsening, WFH stocks are likely to “keep roaring”, as some analysts put it. 

Disclosure: None.

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