Not enough heads in the cloud

Technology stocks aren’t immune from post-pandemic labor shortages and the demand for cloud talent has skyrocketed since the acceleration of remote (i.e. home) work.

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The number of cloud engineering job postings clearly illustrates how rapidly the market has expanded.

While much of the conversation around post-pandemic labour shortages has focused on restaurants, trucking companies and other service industry jobs, technology stocks aren’t immune to staffing concerns, according to CIBC World Markets analysts Stephanie Price, Scott Fletcher and Natalie Zhang.

As the corporate world accelerated digital transformations to implement remote work, the demand for engineers with cloud skills has skyrocketed. Even prior to COVID-19, cloud engineers were a hot commodity, and their bargaining power has only continued to rise. As compensation expectations rise, the pool of companies that can afford to bring on high-level cloud engineering talent has shrunk, and even the largest tech companies now find themselves competing for talent.

It has become clear that companies of all sizes with plans to grow and scale their businesses will need to be proactive when it comes to cloud talent by paying up for top talent, retraining less-skilled employees, outsourcing if necessary, and staying prepared for unexpected recruiting and hiring delays.

Market for cloud engineers explodes

The number of cloud engineering job postings clearly illustrates how rapidly the market has expanded. According to labour and economics research firm Emsi, the number of cloud engineering job postings increased by 97 per cent from 2017 to 2020, more than four times as fast as the overall tech market. At the upper end of the food chain, major tech companies have had to fight each other for top-flight talent, in many cases resorting to non-compete agreements to keep talent from jumping ship. While major tech companies and startup darlings can rely on massive salaries and attractive equity packages, companies in the middle market are likely to find it even more difficult to locate quality cloud engineering talent.

Some of these companies have looked to outsource their cloud projects to IT Service providers. These providers help design, implement, and manage cloud environments and can provide enterprise-grade service without having to bring the talent in-house.

While it is reasonable to expect high compensation levels to attract future talent and increase the size of the labour pool, reports of cloud engineering shortages prior to the pandemic make it clear that the talent pipeline won’t be backfilled overnight. That pipeline is showing signs of growth as data from online education company Coursera Inc. (NYSE—COUR) showed a 78-per-cent increase in the number of people enrolled in cloud-related courses over the last two quarters. Amazon.com Inc. (NASDAQ—AMZN) has also committed to increasing its amount of skilled talent, committing US$700 million to re-skill 100,000 of its own employees and partnering with non-profits and schools. As Amazon Web Services’ (AWS) cloud services face increasing competition from Microsoft and Google, the decision to grow the number of workers that can operate in an AWS environment is straightforward.

Talent shortage is a major challenge

Dealing with talent shortages has become one of the largest challenges facing infrastructure and operations managers. A survey conducted by Gartner found that insufficient skills and resources was the most commonly cited challenge by a group of infrastructure and operations managers. Lack of sufficient skills and resources was a key concern for 18 per cent of managers, second only to managing technical debt.

Underscoring the scope of talent shortage is the fact that concerns around a lack of engineering talent existed prior to the onset of the pandemic. A survey of 400 IT professionals released in February 2020 by Logicworks showed that 86 per cent of respondents agreed that a shortage of qualified talent, and particularly of cloud engineers, would slow down projects. With many industry observers noting that the pandemic accelerated cloud transformations by at least half a decade, those shortages have only been amplified. Prior to the pandemic, 86 per cent of IT decision-makers believed a shortage of qualified talent would slow cloud projects.

Expansion, mergers and acquisitions continue

CGI Inc. (TSX—GIB.A; NYSE—GIB) announced the acquisition of Array Holding Co. Inc., a digital services provider focused on mission performance optimization for the US Department of Defense. The acquisition will expand CGI’s footprint into strategic markets, including the US Air Force and Space Command, while adding to its digital modernization and DevOps capabilities. The acquisition of Array adds 275 professionals and should help strengthen CGI’s position as a leading end-to-end solutions provider to government bodies. Array is expected to enhance CGI’s digital modernization, DevSecOps, cloud, data analytics and cybersecurity capabilities.

CGI announced it has been awarded a $100-million Defense Intelligence Agency (DIA) Data Transformation of Foundational Military Intelligence task order. The task order was awarded on a one-year basis, with four one-year option periods. CGI will help evolve how DIA processes its intelligence, military, and infrastructure data. CGI will aid the agency’s transition to the Machine-assisted Rapid-repository System (MARS) by creating a transition database for the Modernized Integrated Database.

Meanwhile, Lumine Group, a division of Constellation Software Inc. (TSX—CSU) subsidiary, the Volaris Group, announced the acquisition of Kansys Inc. The company is a supplier of mission-critical billing with its cloud-based billing software Edge. Kansys is a modular billing subscription management, event intelligence, and mediation software provider catering to communication service provider and top-tier enterprise corporations. Its Edge suite provides quoting, agreement revenue, collection and usage-based rating capabilities.

Descartes Systems Group Inc. (TSX—DSG; NASDAQ—DSGX) has introduced artificial intelligence (AI) and machine learning based enhancements to its Routing Mobile & Telematics suites. The enhancements are aimed at helping customers improve fleet performance. The enhancement includes Descartes AI Advisor, an intelligent configuration and monitoring module which aims to simplify the configuration process based on clients’ business goals. The machine learning algorithms introduced will be applied to location, transit and stop-time calculations to improve route planning accuracy. The predictions will improve over time as data points on real-world outcomes are collected from mobile and internet of things (IoT) sources.

Docebo Inc. (TSX—DCBO) announced the addition of two new products, Docebo Connect and Docebo Flow. Docebo Connect will enable customers to connect Docebo to custom technology stacks, enabling effective integration. Docebo Flow focuses on incorporating learning into daily work-flows, helping to deliver training within the most-used enterprise applications.

Altus Group Ltd. (TSX—AIF) has completed a bought deal financing that consisted of 2.783 million shares at $62 per share. Altus received $172.6 million in gross proceeds, inclusive of the 15 per cent over-allotment option exercised. The company intends to use the net proceeds to fund growth initiatives and working capital, as well as for other general corporate purposes.

LifeWorks Inc.’s (TSX—LWRK) total well-being platform is now available in the Teams App Marketplace, allowing for integration with Microsoft Teams. The LifeWorks solution is the only combined employee and family assistance program and total wellness platform available as a Teams application. Key features include the ability to spotlight colleagues, as well as easy-to-access support and services, health assessments, and other well-being resources.

CRH Medical, a subsidiary of WELL Health Technologies Corp. (TSX—WELL), announced it has acquired a 70 per cent stake in Destin Anesthesia and a 51 per cent stake in Pinellas County Anesthesia Associates (PCAA). The run-rate annualized revenue is about US$3 million with 40 per cent earnings before interest, taxes, depreciation, and amortization (EBITDA) margins for Destin, and US$8 million with 50 per cent EBITDA margins, respectively, for PCAA. The acquisitions increase CRH’s footprint to 82 ambulatory surgical centers in the US and add 50 practitioners to the team. These acquisitions mark CRH’s ninth and 10th transactions in fiscal 2021.

Finally, dentalcorp Holdings Ltd. (TSX—DNTL) appointed Martin Fecko as its chief marketing officer, effective October 25, 2021. Mr. Fecko will focus on the company’s end-to-end patient journey, maximizing patient experience across multiple touch-points.

Stephanie Price, Scott Fletcher, and Natalie Zhang are CIBC World Markets analysts.

This is an edited version of an article that was originally published for subscribers in the October 29, 2021, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.

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