The Covid-19 pandemic has led to a seismic shift in the style—and venue—of entertainment, learning, shopping, and working. Here’s how companies are responding.
Some large-scale entertainment venues might struggle to regain market share from the at-home portals
Until recently, working from home was an occasional perk for most people, or something done only when necessary. But with shelter-in-place orders related to the coronavirus, we’ve become a nation of telecommuters.
And homeschoolers. And shoppers. We take our entertainment at home. The list goes on. The stay-at-home economy looks a lot different from the going-out economy. And as with any major change in lifestyles, there will be winning and losing public companies.
Michael Kealy, education coach at TD Ameritrade, observed that the need to shelter in place is affecting all aspects of our lives; the long-term ramifications will take awhile to play out. That means if you’re thinking about taking a chance on an investment that might benefit in the long term, you should not only do your usual due diligence but also exercise extra caution. The stay-at-home, work-from-home economy will evolve as we adjust in a post-Covid-19 world.
A vast majority of office workers found themselves working from home full-time. Plus, their children were at home, taking classes online. Demand for teleconference and group chat apps soared.
For example, Zoom Video Communications (ZM) and Slack Technologies (WORK) got a lot of the early attention, especially since they have free versions. But don’t forget about subscription teleconference technology such as Cisco Systems (CSCO) WebEx, Microsoft (MSFT) Teams, and Citrix Systems (CTXS) Workspace. Those digital workspaces offer more features designed for work and schooling, with sometimes better security features.
Kealy pointed out ZM’s issues with hacking and other cybersecurity problems have been well documented. The app is being asked to handle tasks the young company wasn’t expecting pre-coronavirus.
On that note, cybersecurity companies like Palo Alto Networks (PANW), Juniper Networks (JNPR), and Check Point Software Technologies (CHKP) may also benefit if working from home becomes a more permanent feature for more companies.
Investors should also keep an eye on valuations if they’re looking at technology companies. ZM’s valuations have skyrocketed from where it traded at the end of 2019, when shares went for around $68. WORK remains midway between its 52-week high and low.
As far as e-learning and online classrooms, a lot of parents are learning these systems aren’t really ready for prime time yet, according to Kealy. And education may be a tough sector to transform to online because of its communal nature—whether for kids or adults.
With so many restaurants closed or transitioning to limited delivery menus, many more people are cooking at home. That’s led to a surge in food eaten at home, whether food is purchased at grocery stores or via meal kits and shopping services.
Traditional grocers like Kroger (KR), which also owns meal-kit service Home Chef, have benefited, but so have stores like Costco Wholesale (COST), Walmart (WMT), and Target (TGT). Many of these outlets have remained open, even while smaller mom-and-pop stores shuttered.
Some of the initial burst was related to stockpiling (flour, yeast, dried pasta, etc.), but with shelter-in-place orders being extended into May in many states, people are still eating in more. A lot of the demand at grocery stores is for foods that were struggling pre-coronavirus, such as canned goods. Campbell’s and Kraft Heinz have seen strong demand for canned soup and mac and cheese as people seek foods that are shelf stable and comforting.
As people stay home, they’re using delivery services. Companies such as Shipt, owned by TGT, deliver goods from local stores, and of course Amazon (AMZN) Prime can deliver groceries from Whole Foods (along with much more).
Meal kits are also seeing a boost as people eat at home, with companies such as Blue Apron (APRN) and Hello Fresh (HLFFF) saying they’re seeing sudden interest in home deliveries. In late March, APRN CEO Linda Kozlowski said the company was adding staff in key locations to meet the increased demand.
Dining in doesn’t always mean cooking. Grubhub (GRUB) and Uber Technologies (UBER) Uber Eats are seeing an increase in delivery from restaurants, but there’s also been a growing backlash to the amount of money they charge to establishments to deliver food. GRUB’s stock hasn’t benefited from the spike in food-delivery demand.
Kealy said “it’s a giant question” as to how sustainable this dining-in trend will be.
Being stuck at home means many more people are streaming entertainment. Netflix (NFLX), Walt Disney (DIS) Disney+, and Amazon Prime were the first choice for a lot of people.
Netflix said it added 16 million subscribers in the first quarter, the biggest three-month gain in the company’s 13-year history of streaming, while Disney+ nearly doubled subscribers between February and April, with 50 million buyers added in its first five months.
Many companies, such as AT&T (which, through its acquisition of Warner Media, owns several media properties including HBO) and SiriusXM Holdings (SIRI), offered free access to their streaming programs in April (and some into May), possibly attracting long-term subscribers.
While those companies are benefiting from the surge in entertaining at home, movie theater chains like AMC (AMC) are suffering as states have banned large gatherings. That also goes for sporting events, as seasons are canceled for many pro sports, and for events like concerts, which affects companies like Ticketmaster and Live Nation. The question is what will happen once bans are gradually lifted. “Will people feel comfortable going to theaters or stadiums?” Kealy asked.
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The coronavirus could significantly reshape the retail landscape, Kealy observed. Malls, such as those owned by Simon Properties, were already seeing slumping foot traffic, and anchor department stores like JCPenney (JCP), Kohl’s (KSS), and Macy’s (M) were also hurting before the coronavirus hit. Slumping sales in apparel and shoes could spell further trouble.
This is the time for companies to ramp up their ecommerce sites, Kealy said. Of course, companies like AMZN and WMT benefit from online shopping, as do shippers, such as UPS (UPS) and FedEx (FDX). TGT said that although its in-store sales fell slightly since February, its online sales have doubled. However, the chain has said its first-quarter profits were hit by higher costs. That could be a warning for other one-stop-shopping retailers.
People who are stuck at home may turn to recreational shopping; however, as unemployment rises, it’s still a question how retailers will fare as the months go on.
The stay-at-home economy is still evolving, and how it will ultimately influence American lifestyles remains to be seen. There will be both opportunities and pitfalls for investors, as the impact of being at home for such an extended period may change some long-held patterns.
And one final reminder: Do your homework. Many of the companies featured here have already seen an influx of share-buying. In other words, the best-case scenario in terms of the shift to remote access might already be baked into the cake.
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