Travel firms, store operators rally on reopening optimism, big tech firms look back at a tumultuous year, and could Zoom be among the stay-home winners?

Just under 15 months after covid-19 reordered world markets – where we saw several industries hugely affected by the crisis in different ways, triggering a dramatic selloff for stocks and options – the pandemic’s main sufferers are turning a new leaf as we see vaccine-led recovery start to take shape. 

We’re now seeing some of the hardest-hit shares rebound, as equity benchmarks around the world soar to near-record highs, an indicator of the increasing optimism among investors as the seeming eternity of lockdowns and travel restrictions finally draw to a close. 

Home-order groceries, remote working, as well as online shopping have all become what is known as the “new normal”. Consumers across the globe are quite literally looking at products through a new lens. Are we likely to pull away from this new way of living and working?

Sam Stovall, chief investment strategist at CFRA Research, believes companies like Amazon will only continue to benefit from such adapted consumer behaviour. “People are inherently lazy”, she says, indicating that consumer behaviour has indeed evolved for the long term. 

Experts believe in some ways the pandemic may have permanently changed our behaviour, so while some stay-at-home stocks will start to decline as restrictions are lifted, it won’t be universal. 

How we move forward, time will tell. The speed and the effectiveness of the vaccine rollout and the success of each economy’s covid-resurrection very much determines how each of the pandemic’s most famous stocks will perform in the next quarter.

We’ve rounded up a few highlights of some key players during the pandemic, breaking it down by sector.

What We Know So Far

The picture emerging from the Q1 earnings season is one of overall momentum and strength.

Hamish Galpin, head of small and mid-cap investing at Federated Hermes explained to the Financial Times that covid-19 created an enormous bifurcation of valuations between stocks, where the ‘stay-at-home’ stocks did well and the ‘go-to-work’ stocks struggled. 

According to Galpin, many of the smaller companies have had digital front and centre of their operations, seeing rapid growth while some larger companies have found it harder shifting to this new digital world.

Hate it or love it, Zoom paved the way for online communications since the start of the pandemic. It soon soared as the coronavirus took hold and changed the way we all work. In April 2020, sales grew 169%, plus accelerated every quarter since: in July, 355%, in October, 367%, and in January, 369%. However, recent reports highlight that it’s now some way off its peak valuations.

Stay-at-Home Stocks

What were known as the hottest trades of 2020 have since lost some of their shine in recent months as investors seek cheaper valuations and much higher growth expectations in other industries. 

Since the end of October last year, shares of big-tech giants like Zoom, Netflix Inc. and Amazon.com Inc. have all lagged the wider market.

Q1 earnings of Apple AAPL, Microsoft MSFT, Alphabet GOOGL, Amazon AMZN and Facebook FB, otherwise known as the ‘Big 5’ tech players, was a display of utter excellence. 

However, their most recent quarterly releases didn’t quite cause the same reaction. Alphabet and Facebook reports managed to inch higher, Amazon numbers did not impress, while Apple reports appeared to have disappointed.

Since the end of October, Amazon, Zoom, and Netflix have ‘trailed’ the S&P500. Wall Street estimates for the pandemic’s biggest winner, Zoom, haven’t moved in months, with the stock still trading around 27 percent below its 2020 peak, and its shares falling by roughly 50% from their peak. Since the end of August, Amazon has fallen nearly 3 percent, trailing the S&P 500 index’s 11 percent gain. 

Reasons for these stocks stalling is due to the emergence of covid vaccines, indicating an alternate environment to find demand and growth. 

Big tech stocks – the real winners of the pandemic 

Some pandemic winners have continued to prosper as a result of home-working.

Microsoft

Just this month, Microsoft reported that its quarterly sales grew at one of its strongest rates in years. Revenue was up 19 percent from a year earlier, its biggest quarterly increase since 2018, rising to $41.7 billion, and on track to cross $2 trillion in market value.

The magnitude of Microsoft’s earnings can be understood through its 44 percent jump up to $15.5 billion in profits. This figure exceeded both its own expectations and that of Wall Street, clearly highlighting how both Microsoft and other tech companies have shined during the pandemic. 

Satya Nadella, Microsoft’s chief executive, said in a statement:

“Over a year into the pandemic, digital adoption curves aren’t slowing down…they’re accelerating”

The company’s sales of its commercial cloud products generated $17.7 billion in revenue, up 33 percent from a year earlier. 

It’s worth noting that remote-access software, Teamviewer, saw a “significant extra demand” at the start of the pandemic, while chief executive of popular work-messaging service, Slack, reported all-time user records day after day in March 2020.

Alphabet

And just as other technology conglomerates, Alphabet has bloomed during this otherwise dismal time. In its Q1 report, it blew the doors off expectations, posting a whopping $26.29 per share in earnings, topping year-ago earnings by more than 2.5x. Revenues of $55.31 billion wiped expectations of $42.34 billion.

During the quarter, Alphabet benefited from “elevated online activity”, however, Alphabet’s CFO, Ruth Porat, warned that the trend may not continue once lockdown restrictions are lifted and economies recover.

Google

Meanwhile, GOOGL shares have gained 33 percent year to date, pushing it to the top performer of FAANG stocks this year so far.

Apple

Apple’s Q1 earnings and revenues jumped +12.4 billion and $31.3 billion from prior years. During the March quarter, the five ‘Big Tech’ players – Apple, Microsoft, Alphabet, Amazon and Facebook – earned $74 billion in earnings on $311.6 billion in revenues. This group’s Q1 earnings and revenues increased +104 percent and +29 percent from the year-earlier period, respectively.

Online Boom

Higher demand from online shoppers is expected to outlive the pandemic, with digital-only retailers like EBay Inc. continuing to thrive. 

In line with our reference to Google earlier, businesses continue to spend money with the tech giant in an attempt to target consumers who are spending more time online.

Travel

It’s no secret that hotels & hospitality businesses have been absolutely decimated due to the pandemic. The travel sector, however, has staged a comeback, but some airlines remain well below pre-pandemic levels. 

Optimism remains in Europe over a resumption of travel and tourism, thus helping to boost shares of relevant companies and recoup all of their pandemic losses. Indeed, some investors are starting to see the light at the end of the corona-fuelled tunnel, with shares such as American Airlines jumping. 

The UK also just opened up its borders and restrictions on international travel, with many expecting travel stocks to be bolstered in the coming months as bullish investors look to the skies in hope.

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Netflix

Shares of Netflix continue to get slammed on news of declining subscriber growth, sending its shares tumbling.

In the first quarter of last year, Netflix added 15.8 million new subscribers, as the pandemic forced people around the world to stay home – a figure which the markets couldn’t seem to fathom. 

In Q1 of this year, Netflix reported just under 4 million new subscribers, well short of the projected 6 million.

The knife cuts on both sides, however, because while the pandemic may have initially provided more subscribers for the streaming giant, it also disrupted its production pipeline. 

Market share is on a downward trend, as more competitors surface and its rival peers like Disney and Amazon invest heavily in streaming. 

To put it simply, through 2024, Disney+ expects to add 35-40 million subscribers a year, while, at its 2021 trajectory Netflix will add 10 million subscribers per year through 2024.

Ultimately, Netflix loses while its competitors generate more cash due to it being only able to generate cash through its subscriber fees (other streaming services have other channels of profiting), thus highlighting why it might decline further post-pandemic.

Disney 

Disney’s success has been driven almost solely by its streaming service, Disney+, with shares soaring at the end of last year.

A year on, with whispers on economies reopening, tech stay-at-home stocks face the challenge of how their businesses will profit and survive in the short term.

Final Thoughts

With the impending boom around the corner, investors, traders and economies ask themselves: what’s next? Will these companies continue to thrive in a recovering economy? Perhaps the markets may witness healthy June earnings because the comparisons are easy? Or maybe disappointments in the companies that did well last year? And will Zoom be able to hold on to its market-leading position amid increasing competitive pressure?

Indeed, what we’ve learned from the covid-19 outbreak is a dramatic shift in consumer behaviour and a handful of high-tech companies keeping the markets alive.

Referring back to our good friend Galpin, he believes that globally, stocks in several Covid-hit sectors, such as travel and leisure, could actually be strengthened by the gruelling year. 

“Competitors have dropped away, there’s a tremendous chance for some of them to gain market share,” he said. 

“Investors should have a mixture of both – you want Covid-19 ‘winners’ but equally there are some ‘losers’ which are good companies.”

And as we know, the past performance of any company is no guarantee of future results. Nevertheless, it is still a key indicator, helping to identify the winners and losers of the pandemic.

Many experts advise focusing on a stock’s long-term potential. Just as the markets moved wildly as a result of Pfizer’s positive vaccine news, it’s smarter to consider a stock or company’s earnings growth and its overall good fundamentals. The test of a worthy investable stock outlives the trend.

Conclusion 

Of course, it’s impossible to confirm which companies will indeed continue to thrive post-pandemic, and which of those will crash or falter. 

What initially seemed like an economic pause is becoming a more thorough makeover. Markets reshaped and remodelled. If the last few months, year, is anything to go by, it’s safe to say that we can firmly hedge our bets on the big tech giants, the more permeable stay-at-home stocks, in addition to other opportunities that were permanently accelerated by the pandemic, which will no doubt soon show face.

While some experts have highlighted a steep decline in stay-at-home stocks, it’s evident that companies will see a fundamental change in their operations compared to pre-pandemic times (who even remembers those?). 

In a note to clients, J.P. Morgan analysts believe the pandemic will continue to affect our everyday life: from flexible work arrangements to less business travel and teams that can utilise remote collaboration. The latter, obviously, benefitting the real pandemic winner, Zoom, for many years to come.


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