As 2020 unfolded, there was a distinctive disconnect in performance between those considered COVID-beneficiaries and those negatively impacted by the pandemic.
Once successful vaccine trials were announced late last year, those trends started to reverse, and the key question became: how much will people revert to their old habits? The stock market is forward-looking which explains why companies that are facing still-terrible market conditions have rallied so strongly off their lows; consider Flight Centre (FLT), Sydney Airports (SYD) and Crown Ltd (CWN).
Throughout 2020, it was very frustrating to miss out on stocks such as Marley Spoon (MMM), Kogan (KGN) and Redbubble (RBL) which all enjoyed spectacular share price growth on the assumption that some of the pandemic-induced trends would sustain beyond the short-term. We had discussed our views that this would likely reverse at some point and that some trends such as e-commerce would enjoy higher bases but revert to a new normal eventually.
While there are signs that this reverse has been coming, the last week has been very informative about how much people are ‘returning to normal’ after a once-in-a-lifetime year in 2020. This started last week in the US when Netflix reported new subscriptions of only one million over the previous quarter, a pitiful increase considering the gains recorded over 2020. Meanwhile, Uber, which endured a torrid 2020, reported that ride bookings in March hit record levels – an incredible recovery considering much of the world is still battling the pandemic.
Locally, market darlings such as KGN and RBL have announced significant downgrades (at least relative to analyst expectations) as consumer behaviour normalises. This behaviour reversion is not only impacting revenue, but margins as well as KGN is being forced to discount to clear excess inventory levels.
While there is no doubt that these businesses are more valuable than at the beginning of 2020 – their customer level increases have been staggering and they will remain valuable assets into the future as EDM marketing is effectively free – they are all still trading at multiples of their pre-pandemic trading prices, so anyone considering buying (or holding) these stocks need to be aware of the near-term downside in expectations not being met. RBL, for example, is an excellent business that is growing very quickly and has a bright future, but is that in the price already?
