The market has been violently crashing amid the coronavirus scare as the economy and life grinds to a halt across the globe. There is no secret over which industries are suffering, with airlines and cruise ships being at the top of the list. Oil prices are at multi-year lows and are taking down energy companies with them. Restaurants and brick and mortar stores are set to suffer as entire communities go into lockdown. On the flip side, there have been a few obvious winners amid the chaos. That short list includes microcap biotech companies trying to get in on the vaccine race, coronavirus testers and mask makers. But there are other companies that could do surprisingly well in the new virus economy that are currently being overlooked.
The world doesn’t stop even if it is in lockdown and isolation. People still need to eat. People still need entertainment. People will still celebrate birthdays and will need to find toiletries somewhere now that the panicked sheep have rushed out to buy up all the toilet paper for some reason.
While coerced and sometimes forced social distancing is having a tremendously negative short-term impact on the economy and putting people living paycheck-to-paycheck at risk, it is not all bad. Employees are being forced to work at home, which means people will be spending more time with their families. The roads will be less clogged, and there will be less pollutants in the air. The virus is creating changes in society that can be for the better. Once things get back on track post-virus, any new habits that formed that people like may become permanent. This will lead to new economic opportunities and accelerate trends already in progress.
While some companies might experience a short-term dip in sales, what’s more important is capitalizing on a potentially permanent change in society’s behaviour that shifts in their favor. I believe that eCommerce, social media and Chinese lenders make the best bets to benefit from this virus economy and will be some of the first industries to make a strong recovery from their respective pullbacks in price.
Via https://newsapi.org online business online marketing online business opportunities Look for Amazon and other online retailers to benefit along with the delivery services that support them as sales shift strongly towards eCommerce
As people look to save in fears of potentially going without a salary for a period of time while entertainment options such as the NBA or Broadway are temporarily unavailable, overall consumer spending will almost certainly go down in the short term. But people will still need to spend money to purchase the necessities and will want to spend money on more discretionary items. If every mall is closed, they will have no choice but to resort to online shopping.
The trend was already towards eCommerce as online spending represented 16.0% of total retail sales in the United States in 2019. Online sales growth is accelerating as it grew 14.9% to $602 billion last year, besting the 13.6% growth rate seen in 2018. The obvious beneficiary of increased online shopping traffic would be Amazon (NASDAQ:AMZN). Amazon is the incumbent with over a third of online sales in the United States coming through its platforms. The stock has considerably outperformed the S&P 500 this year, so the market may be pricing in some of this perceived benefit.
I expect the trend towards online sales to accelerate beyond initial expectations, thanks to the virus. Given the circumstances of mall closures and coerced limits on social interaction, some people who may have been resistant to buying goods online may no longer have that choice. For instance, an older individual who is buying a toy for their grandchild’s birthday will likely resort to browsing Amazon for their first ever online purchase as it is platform with the most brand recognition and variety of goods. If that person’s experience with Amazon is positive and they are reasonably assured that their financial data is safe, that may spark a permanent change in shopping behaviour.
The United States is a consumerist society. Buying stuff is a form of entertainment. As boredom starts to set in while being stuck at home, people might resort to browsing around eCommerce sites more than they usually would. eBay (EBAY) would be well positioned to provide auction entertainment. Offsetting the benefit would be some challenges that these platforms face. As travel restrictions are abound, they might face issues with their global supply chain and have product outages or challenges with meeting delivery timelines. Now might be a good time to promote “Made in America” goods.
Sales may be higher or lower for online retailers while the country and the rest of the globe is in lockdown. But what’s most important is the opportunity that has been created through the structural shift in the virus economy. Online sales as a percentage of total sales will spike for Q1. Even if that comes down a bit in future quarters, as bricks and mortar locations open and life returns to normal, I believe that this percentage will forever be higher than if the virus never caused people to stay home in the first place.
If people shop online, their goods will have to be delivered to their home. If people are forced into isolation, they’ll have to get their food and other necessities delivered. In an attempt to “flatten the curve” of the virus, utilizing delivery services makes a lot of sense. It’s much better that there are thousands of delivery people out on the road – people who will likely get training and gain experience on how to act to avoid spreading the virus – than millions of people randomly going about their daily lives. Traditional courier companies like FedEx (FDX) could see an uptick in business for package deliveries while Grubhub (GRUB), Uber Eats (UBER) and DoorDash would be the winners for increased demand in food deliveries.
Via https://newsapi.org online business online marketing online business opportunities Social media will win big in two ways with streaming services getting a temporary push
Facebook (FB) and Twitter (TWTR) could be the two biggest winners of large cap tech stocks during the outbreak as people become even more reliant on online communication. Since they are isolated from their friends and family, Facebook will be a primary tool for social communication. Twitter has become the default source for quick (mis)information, updates and dissemination of coronavirus events for many individuals. That is on top of the election season coverage where both platforms are likely to once again play a big role.
Unlike Amazon, both Facebook and Twitter have performed in line with the S&P 500 so far in 2020. So, the potential for increased revenues due to the outbreak has been overlooked by the market.
The drop in line with the market may be a result of street analysis that is bearish on social media platforms, despite the expected increase in traffic. Last week, Needham analysts lowered their expectations on Facebook’s revenue for the year due to coronavirus concerns:
In a research note Friday, analysts Laura Martin and Dan Medina wrote that channel checks show lower spending in travel, retail, consumer packaged goods and entertainment, which together represent 30% to 45% of Facebook’s total revenue. They also wrote that six of the largest 10 advertising countries are “currently COVID-19 hotspots.”
I disagree with this analysis. Travel and entertainment will certainly take a hit, but retailers will know that there will be a substantial percentage shift towards online shopping. A potentially permanent shift. Lower spending by vacation companies should be made up for by increased spending by consumer goods companies in a desperate attempt to keep their market share. The aforementioned food delivery companies that are set to benefit from hundreds of community-wide lockdowns will be aggressive in their advertising spend as well. If analysts continue to lower revenue expectations on Facebook, I believe that the company will beat those targets in Q1 and Q2, enabling it to outperform the market for the rest of the year.
With the good comes some challenges as well. For instance, Facebook has temporarily banned ads for face masks, while Twitter is deleting messages and users who spread misleading information about the coronavirus. This increase in monitoring will increase costs but also gives these platforms an opportunity to show that they can be trusted as reliable sources of information during critical times.
As the NBA, NHL, MLB and other sporting events are on lockdown until the virus threat passes, eSports is the one form of spectator entertainment that remains ongoing. Twitch, owned by Amazon, could see a substantial spike in usage. Online streaming services such as Netflix (NASDAQ:NFLX) could see a temporary bump in subscribers as people make every night a movie night.
Via https://newsapi.org online business online marketing online business opportunities Buy China as the money will be flowing there first to get the economy back on track
At some point in time, the virus will dissipate, and the world will get back to normal, with some countries going through this process sooner than others. This is about the time where investors should look to China for possible investment opportunities. China is like that annoying coworker who came in sick to work one week. By the next week, when the coworker has recovered from their illness, they have infected the entire office. While in places like Italy the virus is getting worse, and in the United States, it’s just getting started, the situation is stabilizing in China. Hubei Province, ground zero for the coronavirus, is set to get back to normal business.
The economic situation is challenging as more than half of the businesses in China are facing a cash crunch due to a severe drop in sales in February. Premier Li Keqiang is calling for monetary easing such as the cut to the banks’ reserve requirement ratio with the specific goal of increased and cheaper lending to small and medium-sized businesses.
The government-sponsored bank lending in China is underway as Canadian microcap Peak Positioning Technologies (OTCPK:PKKFF)(PKK.C) announced that its Cubeler Lending Hub platform will be used to help distribute government relief funds from the Jiangyin Municipal Government and the Jiangyin Federation of Industry and Commerce to the city’s small and medium-sized businesses most affected by the coronavirus. The funds will be distributed to affected businesses in the form of low-interest loans at 18 local and national banks operating in Jiangyin. Peak also announced that its loan brokerage platform has recently scaled up business in the wake of COVID-19.
As a microcap company that primarily trades in Canada, Peak hasn’t been as impacted by the large decline in the market as the large caps have.
Peak has had some success as a startup Canadian Fintech company in China, achieving EBITDA positive results for its last two reported quarters. Guidance provided for 2020 forecasted $40 million in revenue and $4 million in EBITDA (both figures in Canadian dollars) that will almost certainly be beaten if the company continues to take advantage of China’s attempts to get back on track as soon as possible.
Pintec Technology Holdings (NASDAQ:PT) is another company that I expect to do well. It has also partnered with financial institutions in China to extend loans to small and medium-sized businesses as well provide loans directly through its wholly-owned Ganzhou Jimu Small Loan Co., Ltd. subsidiary.
If China is successful in providing a liquidity boost to its businesses, I expect the economy to recover quickly. China was the first one to get into this mess and will be the first one to get out of it. It has a big advantage in being the first one out of the gate on the world stage.
I am invested in Peak, and I will be monitoring Facebook, Twitter, Amazon, and Pintec carefully for possible entry points. I expect all of these companies to do well as the world battles the coronavirus outbreak. When scared investors are looking to get out at any price, it’s lucrative to be an optimistic contrarian.
Disclosure: I am/we are long PKKFF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.