This article is adapted from analysis originally published on Motley Fool in April 2020. Financial figures and stock prices reflect conditions at the time of the original publication and should not be treated as current data.
Why Cloud Stocks Came Into Focus During the Pandemic
The COVID-19 pandemic forced businesses worldwide to accelerate their shift toward digital-only operations almost overnight. What had been a high-priority strategic initiative became an operational necessity. Remote work, digital customer engagement, and cloud-hosted collaboration tools moved from “nice to have” to mission-critical infrastructure in a matter of weeks.
For investors, this context made cloud computing companies a notable area of interest—even as short-term market volatility hit nearly every sector. Three companies that analysts highlighted at the time were Salesforce.com (NYSE: CRM), Twilio (NYSE: TWLO), and Upwork (NASDAQ: UPWK). Each represented a different segment of the cloud ecosystem, with distinct risk profiles and growth stories.
Salesforce: The Enterprise Cloud Platform
Salesforce began as a provider of sales and customer service software and has since expanded into a broad enterprise cloud platform covering marketing automation, analytics, integration, and more. Its customer relationship management (CRM) software remains central to how thousands of organizations manage interactions across every customer-facing function.
The argument for Salesforce as a relatively resilient holding during an economic downturn rested on the sticky nature of its products. CRM and customer engagement software tends to be deeply embedded in business workflows. Cutting those systems requires significant internal disruption, which makes them among the last items to be removed from a corporate budget.
Financial Position at the Time (Early 2020)
- Cash, cash equivalents, and short-term investments: approximately $7.95 billion
- Total debt: approximately $2.67 billion
- Active acquisition strategy, including the pending purchase of Vlocity for approximately $1.3 billion
- Stock trading at approximately 34.8x trailing twelve-month free cash flow at the time of publication
Salesforce’s history of converting organic growth and acquired businesses into free cash flow was a key part of the investment thesis. Its valuation was premium-priced even after a pullback, but analysts argued this was justifiable given the company’s long runway in the enterprise software market.
Twilio: Building the Communications Layer of the Cloud
Twilio operates in a category it largely helped create: Communications Platform as a Service (CPaaS). Its APIs allow developers to embed voice, SMS, video, email, and authentication capabilities directly into applications—without building or maintaining the underlying telecom infrastructure.
The pandemic made Twilio’s value proposition more visible. Businesses scrambling to maintain customer contact through digital channels—chat, automated messaging, video, and secure login flows—found that traditional contact center infrastructure could not adapt quickly enough. Twilio’s cloud-native, developer-friendly approach allowed organizations to build or extend these capabilities rapidly.
Financial Position at the Time (Early 2020)
- Organic revenue growth: approximately 47% in 2019
- Cash and short-term investments: approximately $1.85 billion at end of 2019
- Free cash flow: negative $53.2 million (trailing twelve months at time of publication)
- Stock trading at approximately 10.6x trailing twelve-month revenue—described as the lowest revenue multiple since mid-2018
Twilio was not profitable at the time, which is an important caveat. The investment case rested on revenue trajectory, a strong cash position to fund continued losses, and the long-term market for programmable communications. The company’s Flex platform—a fully customizable cloud contact center—was also highlighted as a significant growth vehicle for enterprise customers modernizing their customer service operations.
Upwork: The Gig Economy’s Cloud Infrastructure
Upwork is the largest online marketplace for connecting businesses with freelance talent. Beyond matching employers and contractors, the platform provides collaboration tools, time tracking, invoicing, and payment processing—making it a full-stack operational environment for distributed work.
The pandemic created a complicated near-term picture for Upwork. On one hand, remote and flexible work arrangements became the norm almost instantly, validating the platform’s core premise. On the other hand, widespread hiring freezes and corporate budget cuts threatened to suppress demand from the employer side of the marketplace.
Financial Position at the Time (Early 2020)
- Market capitalization: approximately $826 million at time of publication
- Price-to-revenue multiple: approximately 2.6x 2019 revenue
- Available liquidity: approximately $134 million
- Total debt: approximately $18.3 million
- Free cash flow: negative $15.6 million (prior year)
- Revenue growth forecast for 2020 (pre-pandemic): 13%–15%
Upwork’s balance sheet gave it sufficient runway to weather a downturn and continue investing in product development. The longer-term argument was structural: the global shift toward flexible, project-based work was already underway before COVID-19, and the pandemic may have accelerated it. For a small-cap stock with meaningful volatility, the standard guidance applied—building a position gradually over time rather than committing capital all at once.
What These Three Stocks Have in Common
Despite serving very different customer segments, Salesforce, Twilio, and Upwork shared several characteristics relevant to the cloud computing thesis of 2020:
- Cloud-native architecture: All three delivered services entirely through cloud infrastructure, making them inherently scalable and accessible for distributed workforces.
- Network effects and switching costs: Each platform became more valuable as more users or developers adopted it, and each embedded itself deeply into customer workflows.
- Strong cash positions relative to debt: None faced immediate liquidity crises despite being in growth-investment mode.
- Long-term tailwinds: Remote work, digital customer engagement, and flexible labor markets were trends already in motion before COVID-19 and were expected to persist afterward.
Important Caveats for Readers
This analysis reflects conditions and valuations from April 2020. All financial figures, stock prices, and market conditions cited here are historical. This article is not financial advice, and past performance or historical analysis should not be used as the basis for current investment decisions. Consult a qualified financial professional before making any investment.
The original analysis was sourced from Motley Fool (fool.com).