Goldman Sachs recently hosted the first day of its three-day virtual Technology and Internet Conference, which convened leaders from 75 companies in the space. We sat down with Goldman Sachs Research’s Heath Terry, business unit leader for the Technology, Media and Telecom Group, who shared highlights from the event. The second part of the conference will be held virtually on February 10-11.
Heath, can you describe the overall sentiment from the event?
Heath Terry: The optimism was fairly prevalent throughout the presentations and client conversations in large part because of improving sentiment around the eventual economic and pandemic recovery and, of course, the strong capital markets. The levels of market activity and many measures of business activity are, in fact, near record highs. Many of the newer companies that attended were either customers—or potential customers—of most of the public companies that were presenting at the conference. And many had recently gone public via initial public offerings or SPACs.
So, what’s driving the pickup in strategic activity in this sector?
Heath Terry: To understand the current underlying fundamentals, it’s helpful to look back to early in the pandemic—during the March to May period, for example—when companies were focused on ensuring that their businesses could continue as usual, while securing their data centers and helping their people work from home. Then, starting in June, many companies saw their customers pull back on discretionary spending given the uncertainty over the virus, elections and the economy. That cautiousness, however, reversed course during the fourth quarter amid encouraging vaccine developments while the stock market rallied, helping to bolster CEO, CIO and CFO sentiment. That’s when we saw companies sign new contracts, begin new cloud migrations and start to deploy their savings. So we really saw a renewed sense of optimism coming out of the fourth quarter and heading into 2021, especially given expectations of larger stimulus packages and a potential end to the pandemic.
What sectors are particularly active?
Heath Terry: Data analytics and cloud software companies are among the most active in the current environment, especially as many small businesses—which are still under tremendous pressure—turn to software and technology generally to reduce costs and improve productivity. One of the CEOs at the conference noted that while bank balances at small- and medium-sized businesses were down about 20% to 25% over year-ago levels—and down about 75% for companies in the most affected sectors—they were leveraging cloud software and software-as-a-service systems in data analytics to cut costs instead of building new data centers. So they’re turning to cloud services to save money in the short term.
How has remote work changed the landscape?
Heath Terry: It’s been a major area of technological development over the last year as companies scrambled to go from a world where a handful of their employees were working remotely to a world where nearly all of them are. That led to the acceleration of videoconferencing applications, but also the development of new tools as necessity forced invention. You’ve also seen companies that were slower to move out of on-premise data centers accelerate their move to cloud infrastructure or cloud hosted applications because they lost access to their physical infrastructure or tools. Interestingly, we’re now starting to seeing the second-order effect as companies change their real estate, recruiting and compensation strategies to reflect this new reality, so we’re only beginning to fully understand the changes to the landscape.