In investing, variations on a theme work only so long as the theme works. And one theme that has worked in the pandemic era has been the “stay at home” play. It’s a pivot on Wall Street that has boosted the equities of firms that get their sales from slinging goods and services to the masses of us that have, for the past year (and then some), done everything from the confines of home.
Any number of companies fit into the basket here — from tech pure plays like Zoom (you might be on a Zoom call right now, as a matter of fact), to Amazon (have you gotten a package in the last few days, or sent one?). Those firms have seen their stocks soar by roughly 149 percent and about 50 percent in the past year.
Beyond those companies lie a host of others that have seen a tailwind from the pandemic. Here’s another: DocuSign, which is up about 121 percent in the past year (sitting in front of stacks of papers to sign, say, at a bank, feels so 20th century).
But there may be some warning signs flashing in recent earnings reports — and those to come — that show the direction is not always up and to the right, and that nothing is permanent.
The “from home” economy may be morphing into something else. Vaccines, of course, are gaining traction. Various sectors of the economy are opening up. And it would not be an understatement to say that we’re itching to get outside, to take our business and commerce, and indeed interactions, beyond the confines of the couch, and of the study. That may signal a drag on for the firms that rely on subscribers and recurring revenues to buoy investor sentiment. And investors, by and large, like to see growth, in revenues, and in users. But eventually, critical mass is in the rearview mirror, and it may be harder to achieve growth at the rates that were hallmarks in the darker days of the pandemic.
Case in point this week is Pinterest, where as reported, user growth may be slowing. The top line grew by 78 percent in the latest quarter, but as noted by The Wall Street Journal, in the U.S., where that market is tied to 80 percent of the top line, subscriber growth was just 9 percent in the period, where it had been in the low double-digit percentages previously. Shares were off 11 percent in the pre-market. Guidance from the company also implies that at least some growth had been pulled forward, during the pandemic. Mid-March is a tell, of sorts, because engagement declined as economies opened up.
Up Off The Couch
In other words, we might be getting distracted by the prospect of having other things to do.
We’re being tongue in cheek, but only a bit. The Pinterest results might prompt investors to worry about other firms where being on the computer, or physically present at home, are the keys to growth. Peloton is one prime example: home workouts get done only when we’re at home. It’s not too far-fetched to think that treadmills and bikes (and workout membership subscriptions) might gather the proverbial dust if we’re back in the office a few days a week. Netflix’s own results showed that it added 4 million subscribers in the first quarter of the year, but missed its own expectations, and cited its own pull-forward of growth in the pandemic.
The platforms, then, live by captive audiences and die by them, too. One might define it this way: The “pure play” stay-at-home firms are the ones that may suffer in the months ahead, while firms that have found avenues (brick-and-mortar conduits, say) may fare better.
There are some stay-at-home stalwarts that should have staying power, regardless of the reopenings, where impulse buys can keep things humming, where we can get outside, yes, but the great digital shift has permanently altered consumer behavior. Amazon, again, stands out here. The convenience of one-day deliveries, for must have items, but also gifts, will continue to have staying power.
But so does snacking. Mondelez’s own earnings report shows continued growth in U.S. and European markets, up a respective 7.9 percent and more than 10 percent, with the tailwind of sales direct to consumers. Management said on the conference call with analysts that eCommerce sales were up 77 percent year over year, especially in the U.S., China and the U.K., and now represent 6 percent of sales.
Amazon and Mondelez are just two names that may see steady gains even if people leave their homes to conduct more of their daily lives off-site. Retailers such as Walmart and Target, which have also been building out omnichannel strategies to meet demand whenever and wherever it appears, may do well, too.
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