Zoom and Other Beneficiaries of the 2020 Covid Pandemic
Their stocks are up; what’s next?
Many people are happy to see the end of 2020. With a contentious election concluded, the Dow reaching 30,000, and the news of a least two vaccines with over 90% effectiveness against the COVID-19 virus, these bits of news are a shimmer of hope to bring an end to a less than stellar year for most. Several companies have done well, even with these negative influences causing economic and political uncertainty. Most notably, teleconferencing software, like Zoom, supermarkets and food delivery, such as DoorDash, GrubHub and Uber Eats, as well as the big players of FAANG (Facebook, Amazon, Apple, Netflix, Google (now Alphabet)) have all performed exceedingly well throughout the year. We will delve into why and what will be their future post covid.
With the advent of the COVID’s “new normal,” Zoom (up 703% YTD), the popular teleconferencing software, has been the bell of the ball and continues to do well, while the office solutions Citrix (up 10% YTD but trailing behind the market down from a YTD high of up 50%) has faltered in comparison. The major difference is that Zoom offered the best option for teleconferencing before the pandemic hit. Their closest rival is Skype. Both Zoom and Skype include screen and file sharing, recording of meetings, cloud storage, telephone access, and a whiteboard. However, Zoom’s business client user experience wins overall with their integrated feature set, including hand-raising, individual meeting URLs, ability to divide into breakout sessions, etc.
“Let’s have a Zoom meeting” is now the standard reference to any virtual meeting.
Citrix did well initially and has signed several deals that keep it moving forward, but it has not kept up with the initial summer hype. There are other players in the game, and 99% of Fortune 500 companies were already using Citrix’s virtual desktop software, so the amount of further growth is limited, and Citrix even saw the 3rd quarter bottom line declined 9.2% on a year-over-year basis.
Similarly, the dining and drinking out industry has been hard hit; 100,000 restaurant closures are expected for 2020, and the National Restaurant Association says that 40 percent of operators aren’t sure if they’ll make it for six more months.
Establishments that were already best suited for alternative food distribution, such as DoorDash, have really done well, and DoorDash is planning an IPO at just the right time with the potential to have a company valued at $32 billion. Grubhub is up 48%YTD, and Uber/Uber Eats is up 58%YTD. Kroger, Walmart, and Costco have all done well with their grocery pick up and online delivery all in place before, but expanded service during COVID.
All five of the technology giants in FAANG have also done well during the COVID crisis. As our lives switched to a more online world, the FAANG companies were there to supply us with the products and services that were required. They have cemented their place in the minds of buyers for any products or services so that if you wanted social media connection, you went to Facebook. If you wanted to buy something, you bought it on Amazon directly or through their marketplace, shopping on your I-phone was how you did it, inbetween facetime calls or watching Apple TV, Zoom was the place of a Netflix movie watch party, and Google/Alphabet filled in the rest of the spaces. Google search was used if you could not find it on Amazon, or were looking for news outside of Facebook. Google cloud services were used to complete work, entertainment was found on YouTube, and Android was right behind Apple for their own apps, phones, and entertainment.
The Secret of Success
There really is no secret to the success of all of the pandemic successful companies. These companies all had their services in place before the COVID pandemic took hold, were top of mind for their industry, and were undoubtedly nationwide, and in some cases, global companies.
Some of these companies have expanded their offerings, such as adding contactless delivery, but they all had the general offerings before the pandemic took hold. The other thing that they had was the ability to change rapidly when it was needed.
The distribution of goods could be re-routed if the Amazon distribution center was closed due to an infection outbreak. A company’s capacity could be altered quickly to match changes in demand, Zoom had the needed hardware and bandwidth to conduct a high-quality meeting with many participants, and Grubhub could take on new delivery drivers who were laid off, and restaurants that were only allowed to sell take out, immediately. A company’s dexterity meant that additional services could be provided when necessary or advantageous.
The question now becomes, with an inevitable COVID vaccine, will the companies that have been successful during the COVID pandemic stay that way?
Many white-collar employees have taken to the at-home flexible working lifestyle. A PWC survey found that more than half of executives see a post COVID workforce working remotely.
This will undoubtedly require the use of services that have become popular during COVID to still be utilized.
Additionally, this will also push companies to think about their workforce in a different way. Can this job be filled by someone working remotely, and do they even have to be living nearby, or even in the same country? The companies that can change to fit these new needs will have continued success, and our successful companies have already shown they can do so.
With the reopening of restaurants, theaters, gyms, bars, sports arenas, and concerts, how food and entertainment are obtained and consumed may be altered post COVID. It is still not certain if the new dinner and a movie date, is going to be ordering from Grubhub and watching Netflix. The likely result will be similar to the above working at home survey, a portion of the total will change compared to pre-COVID; however, we will undoubtedly want to again go out for a nice dinner and some other entertainment.
COVID has changed the world drastically; we are living in a new normal.
Now that we have been doing so for several months it is going to be a reverse culture shock going back to the old ways. Companies that have adapted have found success, and this ability to adjust is what made them successful during the COVID pandemic and will make them successful in the post-COVID years to come.