Start of a New Space Race?...Rise of 'Revenge' Travel...Surge in Software Activity

[Goldman Sachs]( [BRIEFINGS] July 30, 2021 The Beginning of a New Space Race? Above: In Cape Canaveral, Fla., a Redstone rocket blasts off with a Mercury capsule carrying Commander Alan Shepard on the first American manned space flight on May 5, 1961. Ever since Jeff Bezos and his crewmates blasted off into the great unknown last week, there’s been plenty of talk of a “billionaire space race.” But will we see two nations face off as the United States and Soviet Union did during the Cold War? “I think we are in another space race, with China in particular,” says historian Jeff Shesol. In a recent episode of Talks at GS, the author of Mercury Rising: John Glenn, John Kennedy, and the New Battleground of the Cold War argues that the U.S. still doesn’t have the political will to substantially invest in space exploration, despite a bevy of new challenges. He also notes that the biggest space threat comes from what’s happening around Earth’s orbit. “[China and Russia] have invested significantly over the last decade in what they call counterspace capabilities, which is the ability to destroy or disrupt the satellite systems which [we depend on], from cell phone communications to GPS to military maneuvers.” And while the commercial space efforts of Jeff Bezos, along with Elon Musk and Richard Branson, have captured the public’s imagination, “it has not translated yet, and maybe never will, into the political will to spend on a scale that can really counter the Chinese threat,” Shesol says. [Watch video]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Echoes%20of%20the%20Space%20Race%20in%20U.S.%20Space%20Flight%20Today&body=https%3A%2F%2Fyoutu.be%2FlLNOzKh-_3s) ‘Revenge Travel Is Real’ Above: RevPAR Growth. Source: Goldman Sachs Asset Management analysis; data as of 7/23/21. After months of social distancing and lockdowns, people are now flocking to leisure properties in the Sunbelt. “Revenge travel is real,” says Timothy Ryan, portfolio manager in Goldman Sachs’ Asset Management Fundamental Equity team who overseas portfolio construction and investment research for the firm’s U.S. real estate security strategy. Key findings from the team’s analysis of current travel and lodging trends include: The Sunbelt's lodging is booming. Consumers are leading the recovery and driving strong results in leisure-focused markets. Two of the top five markets in the country are in Florida, with weekly revenue per available room (known as RevPAR) up 6% to 30% over 2019 levels—a trend that’s been consistent over the last four to five months. But convention cities have seen better days. At the same time, people are avoiding more business-focused markets—like San Francisco, Boston, Minneapolis, Washington D.C. and Seattle—with weekly RevPAR losses ranging from 44% to 55% compared with 2019 levels. There's hope that those markets will rebound after Labor Day, but the prospects for a strong and sustained recovery remain uncertain, Ryan adds. Room prices are rising. In July, average daily rates for the industry were above 2019 levels, as leisure travelers filled up hotel rooms. But a shortage in labor could create problems for hotels if occupancy rates continue to rise. SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=A%20Tale%20of%20Two%20Markets&body=) Briefly…on the Surge in Software Activity What's driving the surge in M&A activity in the software industry? We sat down with Goldman Sachs’ Ryan Nolan and Nick Pomponi, global co-heads of the Investment Banking Division’s software business, to get the inside scoop. We’ve heard about how the pandemic and remote work dramatically accelerated digital transformations across industries, creating opportunities for software companies. How is the software industry faring now that companies are going back into the office and the economy is reopening? Ryan Nolan: We saw how software was one of the most critical areas of focus and investment during the pandemic. Remote work and the need for the digital-first office challenged nearly every aspect of an organization’s software stack to evolve and scale nearly overnight, from security to collaboration and communication applications, to resiliency and infrastructure platforms. It’s still early but the strong financial results in the first half of the year combined with a solid recovery of valuations in growth software would suggest that the near-term outlook for software remains very bright. Anecdotal signals would suggest that the return to the office and the reopening of the economy have only highlighted the benefits and productivity gains businesses have enjoyed by accelerating digital transformation. Businesses across all industries now have to build infrastructure to support an employee base that likely expects greater flexibility in how and where they work, and a customer base that expects nearly every aspect of their interactions with a vendor to be digital-first. From our perspective, technology and software are at the heart of facilitating that new paradigm, and the flywheel only continues to accelerate. Software M&A activity has been elevated for several years but we’ve seen a sharp uptick in the last 12 to 24 months. What’s driving that activity? Nick Pomponi: Several factors are converging to create a dynamic software M&A market. For one, major companies across all industries—not just technology—are realizing they need to essentially become software companies themselves in one form or another to keep up. Case in point is Rockwell Automation’s recent acquisition of Plex Systems, a software-as-a-service smart manufacturing company, which will transform Rockwell’s manufacturing operations. Private equity firms, which are sitting on large reserves of dry powder, are increasingly deploying that capital in the tech and software markets, leading to some large acquisitions, such as Thoma Bravo’s $12.3 billion acquisition of the cybersecurity and compliance company Proofpoint. And finally, among large corporations—known as strategic buyers—we’re seeing the next generation of large software companies (think: Salesforce, Zoom, Twilio and ServiceNow among others) compete with the mega-cap tech players (like Google, Amazon and Microsoft) to provide companies’ entire software suite, resulting in landscape-shifting transactions, such as Zoom’s acquisition of Five9. Can you describe the IPO market for software companies? Ryan Nolan: The short answer is “volatile but durable.” Volatility creeped into the software IPO market early spring when valuations in growth software fell from their 2020 record highs, ending a software IPO market where a company could do no wrong. Valuations have since recovered from the spring lows, but what I find more remarkable is the quality of software companies we saw come to market despite the volatility and the strong investor receptivity. We saw software companies come to market that change the way we work, such as Monday.com, or reinvent how we manage data, such as Confluent. Given the quality of the companies we see in our IPO pipeline, combined with software-as-a-service business models that deliver significant visibility in financial models, we expect the new issuance market for software to remain robust and active even in the relative turmoil of volatile markets. So where are we headed? What is the next big thing in software? Nick Pomponi: We expect to continue to see AI-enabled software applications that will change the way we work, whether it is through programs that automate worker processes or transform companies’ legacy platforms. The exciting part is that we believe we’re still in the early innings of this data, and AI and automation revolution. [Read more Briefly Q&As]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Briefly%E2%80%A6on%20the%20Surge%20in%20Software%20Activity&body=https%3A%2F%2Fwww.goldmansachs.com%2Finsights%2Fseries%2Fbriefly%2Findex.html) Goldman Sachs Media Highlights Bloomberg - July 27 [Goldman Sachs' Tilton on Coronavirus Impact, US-China Trade, Fed]( (6:51) CNBC - July 23 [Still a Lot of Slack in the European Labor Market, Goldman Sachs Says]( (3:33) CNBC - July 26 [Level of Defaults in China’s Bond Market Will Be Relatively High Going Forward, Says Goldman Sachs]( (2:50) [Subscribe]( [Unsubscribe]( The data provided in this newsletter is for information purposes only and should not be construed as investment or tax advice nor as a recommendation to buy, sell, or hold any particular security. Goldman Sachs believes the data in this newsletter is accurate, but does not verify its accuracy independently and does not warrant or guarantee that it is accurate or complete. 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