As the pandemic surged and companies moved from offices to working at home, they needed tools to ensure the continuity of their business operations. SaaS companies have always been focused on allowing work from anywhere there’s access to a computer and internet connection, and while the economy is reeling from COVID-19 fallout, modern software companies are thriving.
That’s because the pandemic has forced companies that might have been thinking about moving to the cloud to find tools what will get them there much faster. SaaS companies like Zoom, Box, Slack, Okta and Salesforce were there to help; cloud security companies like CrowdStrike also benefited.
While it’s too soon to say how the pandemic will affect work long term when it’s safe for all employees to return to the office, it seems that companies have learned that you can work from anywhere and still get work done, something that could change how we think about working in the future.
One thing is clear: SaaS companies that have reported recent earnings have done well, with Zoom being the most successful example. Revenue was up an eye-popping 169% year-over-year as the world shifted in a big way to online meetings, swelling its balance sheet.
There is a clear connection between the domestic economy’s rapid transition to the cloud and the earnings reports we are seeing — from infrastructure to software and services. The pandemic is forcing a big change to happen faster than we ever imagined.
Big numbers
Zoom and CrowdStrike are two companies expected to grow rapidly thanks to the recent acceleration of the digital transformation of work. Their earnings reports this week made those expectations concrete, with both firms beating expectations while posting impressive revenue growth and profitability results.
Even more, Zoom expects results to accelerate on a year-over-year basis, with its growth rate expected to rise more than 200% in the current quarter. The move to remote work is not only driving free usage of some products, it’s also driving material gains at companies that even offer some flavor of free product.
Zoom and CrowdStrike’s earnings were important to watch as the companies’ results included April data. Most companies reported January through March data. By offsetting their fiscal calendar some, Zoom and CrowdStrike earnings included more pandemic-related results, giving a clearer look at the impact of the digital transformation’s acceleration on two products that have remote-work connotations.
Box is another company benefiting from the boom in remote work. The company that helps customers manage content in the cloud beat expectations on both adjusted profit and revenue during its most recent quarter ending April 30. CEO Aaron Levie said “the need for more organizations to develop remote work and digital transformation strategies on modern cloud platforms has never been greater” and his company was in a good spot to help.
Looking ahead, Box’s guidance incorporated its COVID-19 perspective, including that “expectations that enterprise customers will continue to increase their adoption of Box’s solutions” along with “some softness” from SMB customers. The net of that balance was revenue guidance that came in ahead of expectations.
The virus’ impact
While for some companies, the acceleration of the digital transformation is pushing their results up right now, that’s not necessarily the case for every SaaS shop.
Salesforce, for example, posted record results in its most recent quarter, but its guidance came in under street expectations. Shares in the cloud company dipped following the news.
The CRM giant is short-term bearish, but long-term bullish. Regarding the current quarter, the company stated in its earnings release that due to COVID-19, it was “lowering its revenue guidance” and profitability expectations. But on its earnings call, Salesforce president and COO Bret Taylor was clear: “Every single CEO, every single CIO I talked to, had the same message, which is whatever digital transformation they have left has just accelerated thanks to COVID-19.”
Salesforce, however, expects some temporary financial headwinds as it grants customers some payment flexibility and the like, but it also anticipates an acceleration in the digital transformation; and the venerable cloud company wants to own a big piece of that future.
But don’t assume that Salesforce’s short-term external difficulties are the norm.
Okta reported its own results toward the end of May, besting revenue expectations sharply ($167.3 million versus an expected $155.9 million). What helped it do so? According to CEO Todd McKinnon, Okta has seen lots of “pandemic-related pull-forward” for deals and implementation of its software, saying that “workforce products” are seeing quicker adoption “as a result of remote work and needing more security, whether it’s MFA or just basic access management.”
It’s possible to spot some SaaS giants that aren’t seeing products generate extra revenue in the short term, but those facilitating remote work and other pandemic-driven necessities, are on the bounce. And for companies like Salesforce that might have to wait a bit to see the same result, the singular shift toward digital products will arrive eventually.
Companies rush online
We’re certainly seeing evidence of the rapid transition online, both in the products companies are coming up with in response to the pandemic and the new ways of working. Box CEO Aaron Levie says this period will permanently change the way companies work.
“We think we’re [in] an environment that anything that can be digitized probably will be. Certainly as this pandemic has reinforced, we have way too many manual processes in businesses. We have way too slow ways of working together and collaborating. And we know that we’re going to move more and more of that to digital platforms,” Levie said in an Extra Crunch Live appearance last month.
He added that video is just one example, and we’ve seen the rapid ascension of Zoom and other video services to prove that. Zoom is not alone in its rapid growth; Cisco reported that its WebEx online meeting product usage has tripled above normal volume.
Investors see opportunity
Investors like Mallun Yen, founder and partner at Operator Collective, recognize that there has long been an opportunity in the SaaS markets, one that is only accelerating during the pandemic.
“While the digitization of work was always inevitable, what might have taken decades to trickle out, the pandemic has forced the widespread immediate adoption of enterprise B2B solutions across all industries and functions. From tech to education to healthcare, the Band-Aid has been ripped off and it’s not getting put back on,” she said.
She added that there is still a lot of room for growth. “We are seeing a lot of great innovation being more aggressively sought after by companies large and small. Companies that are able to better equip their employees and businesses with the technology to be more efficient, eliminate repetitive tasks, and enable remote collaboration and innovation will not only pull further ahead but also result in a more satisfied workforce.”
Sapphire Ventures managing director Jai Das agrees and sees companies beginning to examine how they work through an entirely new lens.
“Most enterprises are using this time as an opportunity to look at every part of their business, digitize it and make it more efficient. The way enterprises are manufacturing, distributing and selling products, as well as how they’re providing customer support and managing employees are all being reevaluated. Artificial intelligence (AI), moving to public clouds and using more SaaS applications are going to be some of the first areas of focus for enterprises,” Das told TechCrunch in a recent survey of enterprise investor trends.
All of this means that it’s inevitable as more growth is coming to all aspects of the cloud including SaaS. Chances are, we will start to see the big enterprise SaaS players continuing to grow, while newer startups attack areas still ripe for digitization.
As the pandemic brings chaos to nearly every aspect of our lives, it is also forcing companies to analyze how they work and adopt a more modern toolset, which could be one positive outcome from this era.