The Revenue Mechanisms of Productivity Software - An Analysis by Nextiva on Who is Surging and Why


Scottsdale, Arizona, Aug. 31, 2020 (GLOBE NEWSWIRE) -- Market Analysis of Productivity Software

  • Stocks of providers of software facilitating remote work productivity have generally soared since the beginning of the COVID-19 crisis.
  • The mechanisms through which individual companies, their products, and ultimately their stock values profited vary greatly.
  • Some providers could capitalize on household-name status, or first-mover advantages in emerging markets and the simultaneous acquisition of high-end clients.
  • Others’ profitability was primarily driven by increased spending of existing customers, rather than the addition of new ones.
  • Some of the most prominent players, such as Zoom and Slack, benefited from free-to-paid conversions for a significant part of their growth.
  • Among the most sustainable revenue models is a reliance on strong cloud partners, such as currently implemented by Citrix Systems.

Currently, the US stock market is fraught with uncertainty. With the double disquieting factors of a devastating coronavirus resurgence pummeling the economy, and the prospect of the 2020 presidential election in fall, many investors are looking to adapt their strategies.
In the midst of the overall harsh economic climate, one sector has been doing remarkably well - tools to facilitate remote productivity, communication, and team collaboration. As a leading brand in this market, business communications provider Nextiva can offer invaluable insights into which mechanisms left the stocks of certain companies soaring.

With the abrupt but rapid shift to distributed workforces and business life online which took place during the first wave of lockdowns in March, many businesses transitioned to distributed workforce models. In doing so, they have armed their teams with a plethora of telecommuting tools.

As many of these distributed workforce models are being adopted for the long-term rather than as a short-term workaround for lockdowns, many providers of productivity and telecommuting tools are seeing sustained interest from existing and new customers - and revenues to match.
The reason for which their stocks are set for gains, however, varies between companies. Here is an analysis of five of the most notable providers of productivity tools, together with a look at what defines their revenue structures.  

1 - Extending Revenues Through Existing Clients: Atlassian

Among providers of productivity tools, there are those whose revenue growth isn’t primarily driven by adding new clients, but by increased spending by existing customers.

One such company is Sydney-based Atlassian. While the company’s customer base has been growing amidst the crisis, its revenues from existing customers are expanding even faster. While customer numbers exhibit a Compound Annual Growth Rate (CAGR) of 20%, revenues expand at a CAGR of 37%.

On a mission to “unleash the potential of every team”, Atlassian Corporation offers an attractive ecosystem of productivity tools. Perhaps most well-known among them is the team collaboration platform Trello. Complementing it are products such as Confluence, OpsGenie, and Jira, which allow teams to collaborate on content and manage tasks.

In recent times, Atlassian has continuously outperformed the S&P 500. Over the past three years, shareholders have seen a staggering 390% return on their investments. The stock rebounded quickly from the COVID-19 downturn in March. Year to day, Atlassian’s stock is up 52%.

The company’s earnings report for the fiscal fourth quarter is expected for July 30.

2 - Solid Household Names: Dropbox

Many productivity tool providers’ revenues have expanded during the corona pandemic due to the fact that they’ve become household names. Companies such as Dropbox have been known as reliable staple providers of key services, a reputation on which they could capitalize during the crisis.

Founded in 2007, Dropbox is well-known among consumers as a provider of document-sharing services. With the number of distributed teams growing exponentially during the COVID-19 crisis, the company has seen a considerable increase of corporate demand since March.

When Dropbox went public in 2018, its stock initially soared, only to decline rapidly for the rest of the year. After see-sawing throughout 2019, it hit a low in late December. However, since the beginning of the pandemic, Dropbox’s stock has been performing solidly, though not as strongly as others in the industry. Nevertheless, earnings-per-share are up 70% over the previous period, with attractive P/S and forward P/E ratios indicating potential in the face of continuous growth.

Underscoring this positive outlook is a 10% spike in Dropbox’s stock after a Jefferies analyst released an upgrade on Monday.

The company’s Q2 earnings report is expected for August 6.

3 - Capitalizing on First-Mover Advantage, and High-End Clients: DocuSign

DocuSign’s core area of business is providing digital signatures for business contracts. It shines in terms of productivity tools for helping the transition to digital workflows of formerly paper and time-intensive processes, such as assembling medical records or documenting court processes.

The company provides a stellar example of how providers of productivity tools build value structures centered around constant self-evolution. Their strategy is to service emerging markets - and snag high-end clients in those markets.

During its 17-year history, DocuSign has re-invested significantly into its internal structures and in acquiring useful companies. This left it perfectly poised to capitalize on the rapid transition to digital workflows, meeting the needs of every client. This strategy is now paying off, with DocuSign’s segment of its highest-spending clients growing much faster than the overall customer base.

As a consequence, DocuSign’s shares have been on a tear over the last period, almost quadrupling over a 12-month period, regardless of the coronavirus pandemic. Analyses are expecting an upward trajectory for the mid-term future, underscored by the company’s solid Q1 report, which reported a total revenue of $297 million, a 39% increase year over year.

4 -  Free-To-Pay Conversion: Slack and Zoom

One of the most prominent mechanisms through which companies have expanded their revenues and increased their stock values during the COVID-19 period so far has been conversions of customers moving from free to paid plans. Prime examples have been Zoom and Slack.

Slack alone added 90,000 new clients in Q1 - more than in all of 2019. However, the fact that only 12,000 of them are paying customers left many analysts and investors disappointed following the Q1 report released on June 4.

On the upside, though, a large proportion of the paying customers have multi-year contracts. This hints at two things: First, that Slack is proficient at converting clients into long-term customers, and second, that it can expect solid revenues in the coming years. Since its lowest level on March 16, Slack’s stock value has soared 94.95%.

5 - Strong Cloud Partners: Citrix Systems

Finally, a revenue-generating approach that has brought solid growth to Citrix Systems among others, is a focus on acquiring strong cloud partners.

Among other SaaS applications, Citrix Systems has a long history of providing remote access to resources and complete desktops, naturally branching out into cloud computing and, in the last years, online meetings. Its technology is used by almost all Fortune 100 and 500 companies.
Recently, the company made headlines for striking up new partnership agreements with sector giants Microsoft and Google to provide Citrix services on their respective cloud platforms amid the pandemic.

As a consequence, the company’s services have become particularly attractive not just to companies forced into remote work, but also for the public sector. Traditionally, this sector plans in longer periods and consequently sticks to reliable names. Being among these trusted names, boosted by its recent partnerships, Citrix Systems is looking at a sustainable upward trend for years to come.

Year to date, Citrix System’s stocks are up 52%. Its Q2 report is scheduled for release on July 23, with expectations that it will beat earnings estimates.

Varied Strategies, and a Common Solid Outlook for Remote Work Productivity Tools

Overall, the revenue strategies that have boosted the value of many providers of productivity tools aimed at distributed workforces are diverse.

However, what they have in common is that they capitalize on businesses searching for reliable and affordable tools to facilitate their digital transformation, and build a sustainable basis for long-term remote work. 

Considering the general economic uncertainty arising out of the current uptrend in COVID-19 infections, and the political situation in the US, succeeding in that search may well be a defining point for the future of many companies. And a cornerstone in the future growth of the providers of remote productivity tools.

Media Contact Information:
Name: Jeremy Boudinet
Company: Nextiva