Thread by @JonahLupton

Something very interesting happened today that confirmed one of my new emerging hot takes which I’ll try to explain in this thread.

As always I welcome your feedback and opinions — just be respectful.

Please keep reading 👇🏽👇🏽

Yesterday afternoon $CRM reported excellent quarterly numbers with $5.15B of revenues, a 29% YoY increase from last year. This sent the stock up 26% today after being up 6% the day before. This means $CRM added $50B of market cap over the last two days.

So what did they do today... well they announced they’ll be laying off 1,000 employees 😢

I don’t want to overreact because this only represents 2% of their global workforce but this confirms something I’ve been thinking about since April 🤔

This pandemic not only forced companies to let their employees work from home (or remote) but it proved that employees can be more productive when they are not in the office which means companies don’t need as many employees 😬

In 2020 we have better communication and productivity tools (Zoom, Slack, Notion, etc), better software for everything, better machine learning and AI for data aggregation & analysis and so on. Employee output and efficiency is at an all time high thanks to technology 🤓

Now let’s talking about commercial office space because this party is just beginning. As more companies allow some or all of their employees to work from home through 2021 or longer, it will allow these companies to start unloading their real estate 🥴

If a Fortune 500 company has 50,000 employees and they let 25-50% of them work from home indefinitely then it makes sense this company needs 25-50% less office space. They might have to sublease their unused space until the lease is up but then it’s adios.

There are 25-30 million people in the US that work for Fortune 500 companies. I suspect 90-95% of them were working in offices before this pandemic. What if 25% of them never have to work in an office again? Has anyone stopped to think of the financial repercussions/savings.

Here’s where my hot take is going... do you know the two biggest expenses for most companies?

If you guessed people and real estate you would be correct.

Now that WFH has infiltrated our lives and changed the corporate landscape... it’s become clear that many companies simply have too many employees and too much real estate. 2021 could be the year when both get trimmed.

Hot take bonus time... I suspect large companies (like $SFIX already did) will begin telling employees they have to take a pay cut otherwise they’re going to replace them with a remote worker in a different state who is willing to work for 20% less 😳

For some people who don’t want to move out of the cities or out of expensive suburbs this will create a dilemma but others will be happy to move to a cheaper area, take a pay cut, improve their quality of life and end up with more savings at the end of month.

Why live and work in San Francisco where $200,000 is barely enough to get by after you pay for living expenses, food, car, clothes, etc.

Instead, take a pay cut down to $160,000 then move to Phoenix, AZ or Salt Lake City, UT and live like a King or Queen 🥳

If we see these trends start to play out it could be catastrophic for downtown commercial real estate as well as residential real estate but we’ll likely continue to see housing price appreciation in rural areas across the country.

For companies and shareholders we could see massive improvements in operating margins as they reduce headcount, unload expensive office leases and force employees into taking pay cuts 🤑

Without employees coming into offices everyday it also means companies can start eliminating all the lavish perks and amenities that cost a ton of money to provide like free food, free dry cleaning, free day care, free parking, etc.

Doing some rough “paper napkin” math I calculated these potential WFH trends in corporate America could boost Fortune 500 profits by $500 billion per year which theoretically would trickle down to the shareholders in the form of dividends, stock buybacks and retained earnings.

Thanks for reading and hope you enjoyed my daily hot take 🔥