A Wall Street analyst says the $150 billion HR software market could face slower growth or 'outright shrinkage' as the coronavirus crisis leads to more unemployment

Rick Bowmer/ AP

• The market for human resrouces management software, which is worth $150 billion, is bound to face slower growth if not "outright shrinkage," a Wall Street analyst aid.
• The market, led by ADP and Paychex, has been growing steadily at 5% to 6% yearly, but that could change with the current downturn sparked by the coronavirus crisis, Morgan Stanley's Steven Wald told clients in a note.
• "The human capital management market stands to see either much slower growth or outright shrinkage if current trends persist, from fewer dollars spent on employment and more platforms to serve those dollars," Wald said.
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The market for software used for managing human resources and payroll is worth $150 billion. And it's poised for slower growth or even "outright shrinkage" as the coronavirus crisis sparks a downturn, said a Wall Street analyst.

Companies led by ADP and Paychex have led the market which has steadily grown 5% to 6% annually and has become increasingly competitive with "rising disruption from low-touch alternative platforms," Morgan Stanley analyst Steven Wald told clients in a note.

That's about to change dramatically as the pandemic takes its toll on the economy and potentially leads to massive job cuts.

"The human capital management market stands to see either much slower growth or outright shrinkage if current trends persist, from fewer dollars spent on employment and more platforms to serve those dollars," Wald said.

HR software has become so competitive that "growth comes from taking/losing market share" as well as establishing deeper relationships with existing clients and more hiring.

"It's important to keep in mind the level of employment at client firms matters a great deal for ADP and PayChex today because they aren't organically gaining share," Wald said.

Recent "policy-related" developments, such as the international trade disputes have "already led to pockets of slower US job growth," Wald said.

"The backdrop for employment appears skewed towards net workforce reductions in the next year," he added.

Got a tip about ADP, Paychex or another tech company? Contact this reporter via email at bpimentel@businessinsider.com, message him on Twitter @benpimentel or send him a secure message through Signal at (510) 731-8429. You can also contact Business Insider securely via SecureDrop.

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