Morningstar - Q4 2020 - 43

s Consumer Defensive
r Basic Materials
d Healthcare

4

a Technology

19

13

+400
basis
points

t Consumer Cyclical

0

2019

2025 Forecast

Price/Fair Value Ratio: Technology Sector

Undervalued

Price/Fair Value
1.3

Share of U.S. Workers
25%

9

a Technology

10

Off -10
Investors
0 quickly
10 realized
205 that working from home will benefit
technology companies, sending valuations skyrocketing.

-30Tech Takes
-20
9

Overvalued
Hybrid

i Communication Services

16

EXHIBIT 3

Support for a Hybrid Work-50%
Model-40
Return
The share of employees who
will
work both from home and in the office
will more than double.

d Healthcare

15

4

EXHIBIT
2
t
Consumer
Cyclical

Full Time

20

39

+500
basis
points

s Consumer Defensive

2

1.2

+500
basis
points

20

1.16
1.1

15

1.0

4
13
9

10

0.9

+400
basis
points

5

0.8

0
2019

2025 Forecast

Source: Morningstar.

Overvalued

0.7
09/2010

09/2012

09/2014

09/2016

09/2018

Source: Morningstar. Data as of 09/30/2020.

Undervalued

people, said preserving a firm's culture is a major
challenge of remote working, but he said
that "one of the great humanistic discoveries from
COVID is we can work remotely."
Fink said that the full BlackRock workforce will
never return to the firm's offices and that's
a good thing:
"I believe 60% or 70% [will return], and maybe that's
a rotation of people.09/2012
I think we will be a09/2014
better
09/2010
firm for this. Some people who have a oneor two-hour commute every day, they're going to
enjoy working from home. It's going to be a new
paradigm, but I do believe it will be a better
paradigm for the firm. And if all companies adopt
that, we're going to have less congestion in
cities, we'll have less pollution, and we'll probably
have a better, more robust workforce."
Over the next five years, we forecast that
working from home will increase by 44%. By our
estimates, 9% of the workforce was working
remotely (defined as working outside the
office more than 80% of the time) before the
pandemic, and we expect that percentage to rise
to 13% in 2025. Further, after the pandemic,
we expect that many employers will take a more

Price/Fair Value
1.3
flexible position on where employees work,
1.2
allowing them to work from home several days
1.16
a week. We think this hybrid model could
1.1
more than double by 2025 to 9% of the workforce
from 4% in 2019 ( EXHIB IT 2 ).
1.0
The implications of the work-from-home
0.9
phenomenon for investors are widespread, most
prominently in the technology sector. Investors 0.8
have long realized this, sending valuations
0.7
skyrocketing.
For the09/2018
year to date through
09/2016
September, the sector rose 29.2% compared to
the Morningstar US Market Index's 5.8%
gain. On Aug. 31, the price/fair value ratio for the
technology sector reached 1.24, the highest
in over 15 years ( EXHIB IT 3 ).
The types of tech companies that have
played a key role in this new world of remote
working include:
gCommunication services. These companies have
had to support an enormous surge in the use
of video conferencing and other collaboration tools.
Traditional communications and corporate
interactions are now bundled as a cloud service.
Relatively new entrants such as Zoom ZM,
Slack WORK, and RingCentral RNG have been the

beneficiaries of this trend, but established
players such as Alphabet GOOGL and Microsoft
MSFT have also staked their claim in the market
with tools like Meet and Teams, respectively.
gWork-from-home-enabling technology. Without
the ability to physically work in their offices
or manage paperwork, employees have required
new functionality to address these needs. For
example, Citrix Systems CTXS provides employees
with the ability to safely connect with their
corporate computers through desktop virtualization
and allows remote access to their network
drives. To manage contract execution, which used
to be conducted through a paper-based manual
sequence, DocuSign DOCU is a leader in electronic
signatures and contract lifecycle management
software. Its product modernizes the contracting
process by transforming it to an automated
virtual process.
gInternet architecture and security. The surge
in online communications and networking, which
require high bandwidth and data throughput,
has strained the capacity of many Internet
providers. To address these capacity constraints,
Internet providers and enterprises will look to
update their hardware and software, which will

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