While “crises” and “market disruptions” may not be as infrequent as we’d like to believe, they have rarely had as significant an impact on day-to-day life as we have seen with the Covid-19 pandemic.
If people think back to when “software” meant going to a store and buying a box with a disc inside, they might remember wondering, if the disc would work as expected and how long it would be until the disc was outdated. Cloud computing solves these issues, as it updates to the latest version and solutions to problems can be downloaded. While these benefits were there before Covid-19, with so many people forced to work from home since the outbreak of the pandemic, the realisation of these benefits has been greatly magnified.
If we take a look at the services being provided by cloud companies, we see many that are experiencing rising demand specifically due to the Covid-19 pandemic. For example, the pandemic has placed a premium on network data transmission and cybersecurity, as many employees needed to be able to work from anywhere quite quickly. The likes of Fastly and Zscaler, which address these challenges, have done well in this environment, growing year on year revenue by 38.1% and 39.7%. On a similar note, video conferencing has become an essential tool for people working from home, the demand for a reliable service for those required to connect virtually has led to Zoom’s revenue growing 169% year on year. This is just a snapshot of how some of the market leading cloud companies have fared during the pandemic. It’s sensible to question what the future of business in a post-Coronavirus world will look like, and if working from home becomes the new norm. If that is the case, then business will need to accelerate any plans to transition to the cloud. This transition will be a boon to the cloud industry. It’s almost impossible to envision companies stepping away from the cloud, given how instrumental it has been for business continuity over the past few months. When you frame cloud like this, it’s quite easy to believe that the future of business could rely on the cloud.
Gartner, the research firm, has indicated a worldwide public cloud services revenue forecast of $266 billion for 2020. By 2022, they forecast that it could be approximately $354 billion, or nearly $100 billion higher over just two years. If Gartner’s estimates prove correct, that is roughly a 15-16% compound annual growth rate to get from $266 billion in 2020 to $354 billion in 2022.
With the potential being shown by cloud companies, it’s obvious to see the sectors appeal to investors. Cloud computing may be an avenue for more specific exposure to technology firms with a different set of growth prospects over the next decade. In our view, the software and business model advantages of cloud companies have historically led to better margins, growth, free cash flow and efficiency characteristics as compared to non-cloud software companies. There are currently thousands of private cloud companies and 86 of them are considered “unicorns”—companies valued at more than $1 billion. Seeing this active ecosystem is one way to think of the future potential for cloud, in that a lot of the disruptive, exciting ideas come from these new firms. By 2030, it is possible that cloud will power more than 80% of enterprise software.
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 Fastly Announces First Quarter 2020 Financial Results https://investors.fastly.com/files/doc_financials/2020/q1/1Q20-Shareholder-Letter-FINAL.pdf
 Zscaler Reports Third Quarter Fiscal 2020 Financial Results https://ir.zscaler.com/static-files/ef576930-524f-440c-a8fd-5c92b0d446fb
 Zoom Reports First Quarter Results for Fiscal Year 2021, https://investors.zoom.us/news-releases/news-release-details/zoom-reports-first-quarter-results-fiscal-year-2021
 Source: “Gartner Forecasts Worldwide Public Cloud Revenue to Grow by 17% in 2020.” Gartner Press Release. 13 November 2019.
 Source: Deeter, April 2020.