When investing, variations on a theme only work as long as the theme is working. And one theme that worked in the era of the pandemic was the play “Stay Home”. It is a pivot on Wall Street that has boosted the actions of companies that make their sales by delivering goods and services to the mass of us who, for a year (and even some), have been doing everything from the confines of the House.
Any number of businesses fall into the basket here – from pure tech like Zoom (you might be on a Zoom call right now, actually), to Amazon (have you received a package in the past few days, or sent one?). These companies saw their shares skyrocket by about 149 percent and about 50 percent last year.
Beyond these companies, there are others who have seen a tailwind of the pandemic. Here’s another one: DocuSign, which grew about 121% last year (sitting in front of stacks of papers to sign, say, in a bank, it’s so 20th century).
But there may be flashing warning signs in recent earnings reports – and those to come – that show steering isn’t always up and to the right, and nothing is permanent.
Perhaps the “home-based” economy is turning into something else. Vaccines, of course, are gaining ground. Various sectors of the economy are opening up. And it wouldn’t be an understatement to say that we can’t wait to get out, take our stuff and our business, and even our interactions, beyond the confines of the couch and study. This can mean a drag for businesses that rely on subscribers and recurring revenue to support investor sentiment. And investors, on the whole, like to see growth, revenue, and users. But ultimately the critical mass is in the rearview mirror, and it may be more difficult to achieve growth at the rates that characterized the darker days of the pandemic.
One example is Pinterest this week, where, as noted, user growth may be slowing. The top line grew 78% last quarter, but as shown by The Wall Street Journal, in the United States, where this market is related to 80 percent of the top line, subscriber growth was only 9 percent during the period, compared to previously in the low double-digit percentages. The shares were off 11 percent in the pre-market. The company’s advice also implies that at least some of the growth had been put forward, during the pandemic. Mid-March is kind of revealing, as engagement waned as economies opened up.
On the couch
In other words, we might be distracted by the prospect of having something else to do.
We are ironic, but only a little. Pinterest’s results could make investors worry about other businesses where being on the computer or physically present at home is key to growth. Peloton is a prime example: Home training only happens when we are at home. It’s no exaggeration to think that treadmills and bikes (and workout subscriptions) could collect the proverbial dust if we’re back in the office a few days a week. Netflix’s own results showed it added 4 million subscribers in the first quarter of the year, but missed its own expectations and cited its own growth from the pandemic.
The platforms therefore live by captive audiences and also die by them. We could define it this way: “pure play” home-based businesses are the ones that may suffer in the months to come, while businesses that have found avenues (eg, physical conduits) will fare better.
There are pillars in the hearth that should stay in place no matter what reopens, where impulse buying can rock things, where we can get out, yes, but the great digital shift has definitely changed consumer behavior. Amazon, again, stands out here. The convenience of one-day deliveries, for essentials as well as gifts, will continue to last.
But the same goes for snacking. Mondelez’s earnings report shows continued growth in the US and European markets, up 7.9% and over 10% respectively, with the tailwind of direct-to-consumer sales. Management said during the conference call with analysts that E-commerce sales have increased 77% year over year, especially in the US, China and UK, and now account for 6% of sales.
Amazon and Mondelez are just two names that could see steady gains even as people leave their homes to conduct more of their daily lives offsite. Retailers like Walmart and Target, which have also come up with omnichannel strategies to meet demand anytime, anywhere, can pull it off as well.
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