The New Criterion: stocks that benefit from the enforced working from home boom

Tim Boreham

Independent Investment Research

Having been a euphemism for skiving off or perhaps minding sick kids, ‘working from home’ (WFH) has become not just accepted but a compulsory requirement - or imposition - for white collar workers.

Our tip is that, post COVID-19, divorce lawyers will emerge as the premier growth sector as working spouses see far too much of each other.

In the meantime, investors are running the ruler over stocks that stand to benefit, such as telcos and network providers and teleconferencing plays. Electronic goods houses JB Hi-Fi and Harvey Norman have made it known they are WFH winners - controversially in the case of Gerry Harvey

A lower key beneficiary is call recording pioneer Dubber (DUB), which is finding its groove in what Dubber chief Steve McGovern dubs the age of “unified communications.”

Call recording doesn’t sound like rocket science, with most call centre conversations routinely recorded. In reality, though, the recordings are sent to distant storage facilities and are difficult to retrieve.

After years of development, the Melbourne based Dubber has commercialised a cloud-based call recording platform that provides easy callback, transcription to text and data crunching such as “sentiment analysis”.

For example, if there a spike in the number of customers who say “your company sucks” or “I want to cancel my contract”, management will know they have a problem. To date, these valuable insights have been lost.

Dubber so far has signed up 123 telco customers including Telstra, Optus, Vodafone, AT & T and Sprint. Dubber is integrated into network giant Cisco System’s Cisco Webex Calling, a leading provider of cloud based calls.

On March 25 Dubber inked a deal with the Nasdaq-listed Verizon Communications to integrate Dubber into Verizon’s Virtual Communications Express product.

“In an economy where distributed workforces and working from home become more prevalent, this service enables key business features to be managed centrally while being instantly accessible globally on any device.”

The Dubber platform is essentially the same all over, but operates as platform as a service (PaaS) or Software as a service (SaaS).

Under the PaaS model, Dubber is the white label provider. In other words, the telco sells the product under its own brand.

With SaaS the telcos connect their network to Dubber and the parties jointly go to customers.

“Most customers are choosing SaaS because of sped to market,” McGovern says. “As much as they would like get to market under their own brand (SaaS) reduces the time frame from 18 months to months or weeks.”

Dubber in February reported December (first) half revenue of $4.5m, up 125 per cent and a loss of $8.6m. Annual recurring revenue jumped 77 per cent to $11m.

But the hockey-stick trend belies some disquiet.

In a report dated March 3, Morgans analyst Nick Harris opined that while Dubber was signing up telcos, the conversion of end customers to active users “remains slower than we would have liked”.

Dubber signed its pivotal deals with AT&T and Broadsoft (now part of Cisco) in August 2017.

As of March 20 Dubber claimed just over 150,000 users, double the numbers of a year ago and a 30,000 increase for the quarter.

But this growth emanates from new telco sign ups, rather than from the existing telcos’ existing customer bases.

“We acknowledge that it takes considerable time to move from relationship to billing … but we are disappointed to see that after several years revenue generation remains anemic,” Mr Harris says.

Dubber’s current half numbers will be more instructive, given they cover the corona crisis period.

Dubber this week seized on a mini share recovery to raise $10 million in a placement at 60 cents apiece. The shares closed at 80c before a trading halt and at the time of writing were holding up well.

The moral of the story is that when you’re a small cap there’s never been a better time to have money in the coffers.

Straker Translations (STG)

The work-from-home dictate and universal travel bans also bode well for demand for written translation services, at a time when machines increasingly take over the task of detecting nuances in dialects and making sense of idiom and slang.

The results from voice to text transactions are frequently hilarious: “hi Stacey” becomes “hi Sexy” and “home at seven” becomes “see you in Heaven”, etcetera.

In any language the sector is well served. Straker Translations founder Grant Straker says there are no fewer than 20,000 providers in a sector globally that’s worth $40-50 billion. Most don’t have the scale or resources to compete –in fact only the top are scale operations.

“They are in the dying zone. There’s no innovation and they don’t have capital,” he says. “They have relations with existing companies have had regional protections they are standing to lose.”

The Straker model isn’t all machine in that complex or specialist topics still require a human overlay. For instance, they’re not that good at deciphering aeronautical engineering manuals.

“We need to use machines to get the volume but humans still have the refinement and quality,” he says. “It’s not as simple as getting Google Translate and having someone tidy it up.”

Straker recently decided to pull back from the consumer market in favour of enterprise (business) clients, which include Apple TV and Disney Plus.

With machine learning the old rule of ‘garbage in, garbage out’ still applies and a key issue is the availability of data to ‘train’ the algorithm. While not the most enthralling contents, voluminous European Parliament transcripts are used to ‘train’ the machines in Latin languages.

“Training a machine is generic. IBM Microsoft and Google all do it but our core advantage is we can use the machine to optimize a commercial benefit,” Straker says.

“If a machine makes a human go faster you do get a commercial benefit and that’s our secret sauce.”

In the year to March 2019, 47 enterprise customers (billings of more than $100,000 a year) delivered 55 per cent of Straker’s revenue, with 2500 small to midsized clients accounted for the remainder.

Straker generated revenue of $NZ24.5m ($23.7m) in the 2018-19 year and posted a $NZ4.3m loss

In the September (first) half of 2019 the company turned over $NZ13m, up 13 per cent and lost $NZ230,000.

At last glance Straker had cash of $NZ14m and no debt.

Straker is 14 per cent per cent owned by the ASX listed investment company Bailador Technology (BTI).

Tim Boreham edits The New Criterion

Disclaimer: The companies covered in this article (unless disclosed) are not current clients of Independent Investment Research (IIR). Under no circumstances have there been any inducements or like made by the company mentioned to either IIR or the author. The views here are independent and have no nexus to IIR’s core research offering. The views here are not recommendations and should not be considered as general advice in terms of stock recommendations in the ordinary sense.

Tim Boreham
Editor of New Criterion
Independent Investment Research

Many readers will remember Boreham as author of the Criterion column in The Australian newspaper, for well over a decade. He also has more than three decades’ experience of business reporting across three major publications.

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