The pulse on emerging technology: Key themes and outlooks for 2022

Technology evolution continues to fuel unprecedented change across all sectors, creating dynamic market conditions and powerful opportunities for savvy investors who understand today’s market drivers - and tomorrow’s potential deals.

To help clients and investors unlock competitive advantage from seismic shifts in technology, senior analysts from KeyBanc Capital Markets (KBCM) convened at the 2022 KeyBanc Emerging Technology Summit in San Francisco, California, to review the near-term landscape of solutions in software, internet, and fintech. The conversation featured senior analysts Michael Turits (Enterprise Software), Justin Patterson (Internet – Digital Media & Travel), and Josh Beck (Fintech and Software).

Based on their extensive research and analysis, the panelists highlighted five key trends they are following right now:

1. Enterprise software: Continued growth anticipated this year and beyond.

While some had thought enterprise software growth would soften compared with last year, CIOs signal very little if any slowdown in recent surveys. In a world of uncertainty, this sector boasts strong secular drivers from multiple sources: persistent digital transformation efforts, continued migration to the cloud, cloud infrastructure demand, automation, and new applications development and production.

While cyclical drivers have slowed slightly this year, with general doubts relating to geopolitical, inflation and consumer demand considerations, the analysts’ overall takeaway is that software is demonstrating a strong and above average long-term growth rate.

In an unusual twist, KBCM’s Michael Turits observed that the software sector is defying norms in the relationship between innovation and industry consolidation. As he commented, historically, innovation and consolidation typically have an inverse relationship—in slower periods of innovation, we tend to see an uptick in M&A, while during periods of rapid breakthrough, fragmentation is more common. Right now, innovation continues to accelerate in the software field, with new companies forming left and right—and yet the industry is teeming with mega deals, consolidations and enormous vertical and horizontal integration schemes.

2. The intersection of marketing tech, fintech, and cloud infrastructure spells secular growth in the broadly defined fintech and software ecosystem.

Growth is also strong in internet-oriented business, with Justin Patterson explaining that valuation varies for companies depending on how they are emerging from the pandemic. He sees three categories:

• Companies that experienced tremendous growth during COVID, but amid reopening have seen attrition, customer loss, and decelerated growth rates.
• Companies that had a pull forward of the end state, essentially accelerating to a point where they would have gotten anyway.
• Companies that have had permanent improvement and are coming out of COVID much stronger.

Organizations have more data than ever before, as well as more ways to better target users, so advertising revenue is likely to grow across major players in the market. Despite that optimistic prediction, going forward, valuations may also be impacted by tremendous uncertainty with Russia/Ukraine, which may affect consumer demand—and in turn advertising and GDP more broadly.

While M&A is not a key theme in this sector, expect to see some tuck-in M&A to accelerate building new tech – including e-augmented reality and AI.

3. Fintech grows in market share, but tough to predict the trendlines.

Massive growth in e-commerce enablement and digitization catapulted fintech growth in 2020. As KBCM’s Josh Beck pointed out, it took five years to get 5% of total penetration within e-commerce—while the next 5% took only 18 months. And, while much of that growth persisted through 2021, it makes year-over-year comparisons hard to draw and difficult to predict moving ahead.

Ultimately, Beck is optimistic many companies in this space will get to the next level, and that further market penetration in e-commerce will bring more diversification, and in turn, additional growth. For example, he predicts more fintech companies will get into ad-tech to help create more frictionless consumer experiences, helping redefine what it means to be a premier company in this space in the coming years.

4. Back office technology plans gearing up to make a post-pandemic comeback.

Before 2020, many companies had plans to broaden tech spending to back-office solutions. Amid the first wave of COVID-related shutdowns, however, many of those projects were shelved as the collective focus shifted squarely to e-commerce. Early post-pandemic indications from CIOs signal a potential move back to middle- and back-office strategy—and a promising area for new growth in 2022.

5. Privacy law, security, and cryptocurrency create new opportunity.

In an omnichannel world, customer data is everything—but it must be handled with care, from adhering to evolving privacy compliance requirements, to leveraging cloud infrastructure, to more effectively targeting consumers to generate revenue. Overall, the stricter privacy environment is driving opportunity by blurring old lines of delineation between channels and prompting more innovative data strategy.

While cryptocurrency is in the midst of massive consumer hype, the analysts reinforced the need to commercialize and productize through proven technologies. That will determine the difference between a fun trend and a viable business model to pursue. Regardless, crypto is a big issue to watch in all spaces; we expect to see it as a large part of the 2022 narrative.

Stay ahead of the pulse on emerging technology with KeyBanc Capital Markets

From enterprise software to fintech and cryptocurrency, technology is rife with opportunity—when powered by in-depth expert market analysis. For more information, connect with one of our technology investment bankers at key.com/experts.

To learn more about attending one of our conferences, email the Corporate Access team.

About the 2022 Emerging Technology Summit

The 2022 Emerging Technology Summit attendees included 800+ institutional investors, 115+ private equity/venture capital and corporate development investors, 38 public companies and 110 private companies. The agenda included 68 Fireside Chats/Presentations, 10 thematic panels and 5 Keynotes.