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5 Big Questions on Stay-At-Home Stocks

It's a term we've heard a lot but will there be big moves?

September 20, 2021

The pandemic accelerated growth for a number of companies. A lot of businesses signed up for Zoom (NASDAQ: ZM) and a lot of people bought Peloton (NASDAQ: PTON) bikes, as just two examples.

A huge question remains, however, around what these businesses will look like in a post-pandemic world. We know that people won’t stop having Zoom meetings or completely ditch their connected fitness devices so they can ride actual bikes but they’re likely to change their behaviors as the world opens back up.

Anirban Mahanti joined the Sept. 15 edition of “7investing Now” to answer 5 pressing question on “stay-at-home” stocks:

  1. Zoom showed slowing growth in its most-recent quarter. Do you expect to see companies driven by the pandemic come back to earth?
  2. Are people going to go back to gyms in a post-pandemic world? What will this mean for Peloton and the overall expensive home workout trend?
  3. Will streaming permanently disrupt the traditional movie business?
  4. Will we see consolidation in the digital payment space?
  5. Is third-party food delivery a viable long-term business?

The answers aren’t simple and they may not be what you think they are. And, for investors, it may be a question of patience when it comes to valuation with some of these stocks, not a question as to whether you should own the stocks in the first place.

A full transcript follows the video.

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Dan Kline: We’re going to start with talking about five questions on stay-at-home stocks. And then we’re gonna talk about some of the worst investing mistakes we’ve made, and some of the worst investing mistakes you’ve made.

So let’s get right at it. I have five questions. And I’m going to throw them at you one at a time. I may weigh in. But this may just be you. So Zoom (NASDAQ: ZM) showed slowing growth in its most recent quarter, do you expect to see companies driven by the pandemic come back to Earth? I know that’s a bit of a loaded question.

Anirban Mahanti  1:44  Zoom specifically might have slowing growth, one of the things I like to remind people is, let’s say in the pandemic you did 100% growth. And then post-pandemic, when you’re lapping the pandemic quarter or quarters, you did 30% growth, what we need to remember is that it’s that 30% growth is on top of that 100% growth, right? It is still growth. And in normalized world, that would still be huge.

So Zoom’s particular results actually look pretty good to me. Great free cash flow. I think the question for Zoom in particular might be what is the future? Right? I mean, what does the future look like? How many zoom phones do they sell? How many more zoom seats to sell and things like that. But in general, I think if you’re in a secular growth area, I am not. I mean, yes, there’s some valuation push, pull back and things like that, that might be there. But if you’re growing on top of big growth numbers, it’s okay. So I don’t know, it looks okay to me, I understand that the stock has pulled back.

Daniel Kline  2:56  Yeah, I fully agree. We’ve seen a lot of this in the retail space where the companies have made a point of saying, hey, look, on a two-year basis, here’s our growth. So you might be upset that last quarter, we posted 54% growth, but we posted 18% growth this quarter. And that’s not normal in retail if like, if the average company says hey, we’re up 4% year over year, that’s actually really big in traditional retail. So I think it’s gonna take Zoom a while to maybe catch up to its valuation. And I think there might be periods where some of these stocks feel expensive.

But if you have a long-term view, Zooms a category leader, I’m not worried about Microsoft, there’s going to be room for a couple of winners. I think Zoom is going to be one of those winners. Let’s move on to question number two here.

And that’s are people going to go back to gyms in a post-pandemic world? What will this mean for Peloton (NASDAQ: PTON) and the overall expensive home workout trend? I asked this partially because I’m curious if it’s different in Australia than what I’m seeing here. I know your gyms are probably not open. So you’re using supposition more than anything else.

Anirban Mahanti  3:57  So like you know, so I have a different take on this one. W bought a spin bike, a cross trainer, and a bench and some you know dumbbells during the pandemic. Pretty much for us I think we are not going to a gym ever right and we did not buy Peloton because it was more expensive. So we bought what’s it called Logitech or Nordic whatever they make, you know, beautiful looking equipment as well just because half the price, really?

So the thing here is that if people have really bought gym equipment, and they actually plan to use it, well, it’s a building mini gym at home, why would they want to go to the gym, especially now that you can you know get fitness classes whether you’re using Apple fitness or using peloton or something like that.

So I think that’s one of those things where I think that if there has been a trend and the trend continues, that’s actually a negative for physical gym. But it’s also not good for people selling hardware because how many times are you going to sell the hardware. You can sell the hardware only one or two times, right?

Daniel Kline  5:03  Well Peloton is arguably a subscription business driven by its hardware base. I will say one question here were you are regular gym person before the pandemic? That’s not a comment on your physical condition.

Anirban Mahanti  5:18  So no, no, not a regulatory person. So for me actually, that time convenience of having things at home is a big deal. So I would have no it’s done, it’s maybe not the right demographic.

Daniel Kline  5:31  So I was a, it’s weird to say regular gym goer because the gym was in my building in my previous building the gym was closed for much of the pandemic. And I bought a lot of inexpensive gym equipment that added up to expensive. So I should have just bought some expensive gym equipment, and it really had had the right thing.

But I’m going to push back a little bit, I actually think that your person who was going to a Planet Fitness when safety concerns are gone, he isn’t going to care about that $10 or $20 a month and is going to like going to the gym even if it’s once a week when they used to go three or four times a week, unless your home gym and the gym where I live is the equivalent of a Planet Fitness. So while I have a membership for travel, it’s not something I need to use at home.

I think you’re going to see people keep those memberships and the people who are members of a high end gym. Yes, a small amount of them might not go back you know to an Equinox or an LA Fitness which is like a mid level gym like a $40 a month gym Equinox might be $100 they might not go back because they have this peloton community. But if you join an Equinox some of that is social standing. Some of that is where you live in a city like New York or even if you have a peloton you don’t have a ton of room for other things.

So I actually think Peloton is going to do well. And Planet Fitness is going to do well. I mentioned Planet Fitness because they’re public, I actually don’t think we’ve seen a big trend, except the gyms are gonna get what they want, which is you to join and not use the gym as much, which is actually like, arguably the business model for some of these

We’re gonna go to question number three here, will streaming permanently disrupt the traditional movie business? I was at a movie theater for the first time in a long time this weekend. But I wasn’t actually watching a movie i was i was watching a pay-per-view event with my son but will streaming permanently disrupt the movie business?

Anirban Mahanti  7:22  So this one depends on what you think is a disruption. I mean, this disruption has been happening for over a decade. Right? I mean, there’s you know, there is movie business, I guess, you know, the the window for release, and then you know, having stuff on streaming, the time lag has actually decreased over time. There’s money to be made here. Here’s my take on this is certain movies are made for the cinemas.

And if you don’t want to see a high octane drama spectacle thing, even if you’ve got the biggest screen on TV, and the best sound system at home. It’s not the same thing. I think there is a room for that. But if you want to watch small, you know, Adam Sandler comedy

Daniel Kline  8:14  Can we put “comedy” in quotes?

Anirban Mahanti  8:17  Okay, Adam Sandler comedy, then that’s best seen on Netflix. I mean, I think there’s room for both. And I think there’s more room for content. And I think the other thing I’ll first say for streaming is streaming is actually great for long content, right. So like, shows, it’s fantastic for series, and things like that a lot of new storytelling ideas are possible.

So I think I think they can both live. How many theaters or cinema halls survive? What’s the economics there? And anyways, in the cinema world, you make more of popcorn and cold drink, then you actually probably do off the seats, right?

Daniel Kline  8:56  Yeah, no you do. And the problem is, we probably have about 80% too many screens. And people talk about alternate uses for screens. But let me throw out what I what happened with me this weekend, my son and I, my son wanted to watch the non WWE pro wrestling event. And it was $60 to order it at home, or $25 to watch it at a place called the studio movie grill where we could order food and it was fairly pleasant. It was near a vacation home It was a fun experience. And my son wanted to watch it with other people. There were maybe five other people in the entire theater and they were not necessarily the people you want it to be watching an event with.

That being said though, if there were three of us, the economics wouldn’t have made more sense. So if I had a friend who wanted to come or a second kid, well then it would have just been cheaper to watch it at home and frankly, as a 47 year old man who had to sit in a theater from 7PM to Midnight, I would have greatly preferred ordering in some food and watching it at home and being able to go to bed right when it was over instead of having a 10-minute drive.

I don’t think there’s a lot of reason to go to the theater. I am a blockbuster movie fan more so than most. But I watched Suicide Squad on my TV because it was free on HBO Max. Shang-Chi, the latest Avengers movie, we will probably go see it in the theater this weekend. But that’s going to be the exception and not the rule. So do I think there’s a place for blockbusters? Yes, absolutely.

But I think you hit it. You nailed it when you talked about shows because I think some of what would have been arthouse movies are now actually becoming short-run shows we have one now with Martin Short Steve Martin and Selena Gomez on Hulu, I think it’s called a murder in the building. And there are three people who like a true crime podcast and they discover a murder in their building. And it’s an eight or 10 episode series that would have been an arthouse movie, it’s better served by being a series, it has time to build, it doesn’t have to, you don’t have to spend 100 million to make it. You don’t have to do 100 million in business. I think there’s a lot of potential there.

But I do think we’re also seeing just an endless amount of like Hallmark level movies, that kind of never would have been made or would have been on Hallmark. And it is very difficult to make the decision as to what to watch. Whereas just previously being released in a theater either meant it cost X amount of money, and they had to cut their losses, or if it was a smaller film, they thought it was good enough to be worth that spent the marketing budget. So I find them very hard to answer me you’re stuck at home? Do you have a hard time deciding whether to watch a movie?

Anirban Mahanti  11:28  Oh, yeah, all the time. It’s, we’ve got Amazon prime, Netflix and Apple TV+. And during the three we can’t find anything to watch sometimes right? And yeah, it’s sometimes it’s trouble. And sometimes what happens is what I think these recommendation engines are really, really bad. Because what the surface is actually not what I want to watch. And then I discovered stuff that I would like to watch by mistake. It’s like, oh, like by chance,

Daniel Kline  11:54 It is a giant problem. So I’ll go to Netflix and my Netflix, which admittedly, I share with my wife but it’s not like it’s you know, we didn’t differentiate our users which we could have done. I watch superhero shows and comedy specials. She watches true crime. Our recommendations are not the next superhero show. I go back to my old TiVo days where I joke like I because I programmed it to record the Simpsons. It said, you probably want to watch the Flintstones. Well, if you know anything about cartoons, No, probably not. But at least rudimentary, it’s correct. So if I watched the latest Marvel movie, I might want to watch the latest Batman movie like that. That makes sense.

We’re not even there. This is not unique to streaming. I’ve complained about this a lot. Amazon does a terrible job with book recommendations. I will argue that if I’ve read the first 19 books in a series, it’s a really safe bet to tell me the 20th book is coming out. And I might want to buy that. And they don’t do that. So there is something technically or maybe there’s a reason where they know I’m going to seek that out. So they actually make more money showing me something I probably don’t want. There might be some evil science behind this.

But we will revisit this I want to get to number four here as sirens go off in the background. I live next to a fire department. If anyone ever wonders why there’s always sirens behind me. Will we see consolidation in the digital payment space? And I bring this up because I don’t think my list is even complete here. But in the last 10 days, I’ve used Zelle, PayPal(NASDAQ: PYPL), Venmo and Square (NYSE: SQ). I’ve used all of those for very specific purposes. That seems like way too many. Are we going to get some consolidation here?

Anirban Mahanti  13:30 This one is a hard one. I mean, I think you can. But I think it’s largely true that the big ones are PayPal Venmo. And Square right. And isn’t Venmo? Basically PayPal, right? Is it Venmo? PayPal?

Daniel Kline  13:45  They are the same company, but they are distinctly different product different. tricky. Tricky, annoying.

Anirban Mahanti  13:53  Yeah. So the same company, I mean, different parameters, this branding, I think, maybe the you the way I look at the payments, sort of, you know, way you use the payment technologies in the US there. There are a few big names, couple, maybe two or three leaders, and then I think they will have distinctive branding there. I think it looks about right to me, I think it’s really hard for new players to sort of make a name for them. Right. So I’d never heard of this. The other one that you mentioned.

Daniel Kline  14:22  So Zelle is actually a partnership between Wells Fargo and some other major banks. So you’re kind of forced to use it like I pay my rent through Zelle. I don’t want to that being said, because it is tied to my bank account there are no fees associated with it. Whereas if you’re tying your PayPal or your Square your whatever to a credit card, there could be fees associated with it. So there are some benefits.

But for me, like half the time, like I have dinner with a friend and we go to settle up and it’s like wait, we’re on like three different platforms. I think there’s some room for either some partnerships or some cross operability Like, it just feels to me like this should be easier.

Anirban Mahanti  15:03  You know what I think should be easier, paying for things. So we can already use an Apple Pay seamlessly to pay for goods right at the terminal. But what you can’t use Apple Pay right now for is to pay for, say your rent or other things. That would be disruption in my view is that if you use Apple Pay or Google pay, or whatever you’re using, Samsung Pay, and it’s all integrated, and it’s all part seamless. That would be disruption.

Daniel Kline  15:31  You could because you could send like cash, like I’ve sent my son cash via apple. The problem is, it’s then you have to send them like, how do you redeem it like it’s, it’s, it’s,

Anirban Mahanti  15:43  It’s not seamless.

Daniel Kline  15:44  It’s not. And I will say like a negative of Venmo, because I have a property that someone’s renting for a few months, and they pay me on Venmo. And Venmo, doesn’t send me an alert to say I have $1,500 in my account, like that seems to me like a little bit of a glitch. But again, we’re in the very early days of this, I do think there’s going to need to be either a layer over this where it kind of works like some of your credit cards do where like PayPal, you could put a bunch of credit cards in your PayPal, I think you might see somebody’s program that you can have all of these things, and but pay through one app and connect through other things. There’s, there’s another piece of this story here. But here is the fifth one people have heard me talk about this a lot. So I am not going to weigh in again, this might be a little different in Australia than it is in the US. But is third-party food delivery a viable long-term business?

Anirban Mahanti  16:37  Oh, so you’re talking about things like Uber (NYSE: UBER) and Doordash (NYSE: DASH), and things like that, right?

Daniel Kline  16:40  UberEats, Doordash, we have Postmates, we have there’s like 17 of them here in West Palm, there’s a whole bunch of local ones. And it’s tricky, because they’ll all have different restaurants. And you have to figure out which one actually has the restaurant, and which one went out and got its menu and is placing the order with a credit card can lead to all sorts of problems. Because if your orders wrong, the restaurant has no responsibility. I don’t like this business. And I use it like three times a week. So that is problematic.

Anirban Mahanti  17:09  Yeah, so we use it a lot as well. And you know, the usage is basically a function of two things. One is who has the restaurants, and B, who is charging less fees. So you go to Doordash because Doordash is trying to build its list of clientele. And you know, so and they’re not charging that much fees. So go Doordash when the restaurant is ready to do that. Let’s go back to Uber Eats, because then what all the restaurants? Look, I think it’s an insanely profitable business, right? Because they’re making money off the

Daniel Kline  17:37  No, it’s not these are largely money-losing businesses.

Anirban Mahanti  17:43  So you think about ignore their marketing spend. But if you just think about what they’re making money off, like at the unit level, this is very profitable, because they are charging the restaurant a fee. And in Australia, at least Ubereats actually has two different fees that they layer on, they charge a delivery fee, and a service fee, which adds up almost $10 it’s not even worth it unless you’re ordering like $100 Plus, but you got to pay $10 anyways, right? Sometimes delivery fees, like as high as service fees as high as $8 or $7. So that’s all like gravy, right?

They’ve got money there, and there’s a network expansion. I think this is a network game, and whoever’s got more number of people on it. So it’s not one where I think you can have multiple vendors succeed, but you can have like a duopoly sort of system like DoorDash plus Uber Eats, and it can be profitable. Because the unit economics, I think, work out in the long run, but not for the many others, I think they are gonna go is what I would think

Daniel Kline  18:51  The unit economics work better, though, if you’re actually more exclusive. So one of the things I’ve noticed is they’ve gotten better at Uber Eats where I’m not the only stop the person is making. And I wonder and this is just thinking out loud a little bit. But maybe we don’t need 25 pizza places on Uber Eats maybe we need the three best ones, to drive more orders to it and create more efficiency, like Domino’s is incredibly efficient with its deliveries. Because it’s using AI it’s using routing technology to go Okay, 50 orders came in in the last hour, here are six drivers. And here’s how they’re going to efficiently do this.

A lot of times I’m ordering from places that are farther and farther away as restaurants are being more willing to sort of eat some of this cost. And I’m the only order it can’t be efficient at me getting like $70 worth of barbecue with for $5 or $6 worth of fees to deliver from a restaurant that’s 35 minutes away and be the only stop like that. They need to deliver more things. But am I wrong in thinking that like delivering from Chuckie cheese just isn’t that relevant? I’m not sure if that’s a brand you’re familiar with. It’s a low-end kids pizza chain.

Anirban Mahanti  19:58  So here’s the thing, right? So It depends on how they’re paying the driver, right. So if the driver has been paid from the Uber Eats card, so as I said in here, I don’t know what they’re doing in the States. But here there’s two different fees or two, there’s two different fees, there’s a driver fee, there is a service fee. And then there is what I call the hidden fee, which is the fee that’s being charged the restaurant, right?

So say you order 50 bucks from a pizza place, maybe you’re paying $5, from there to a driver, and that’s all what the driver is getting. And then there’s this other 10 bucks, and I’m paying extra that actually Uber Eats is getting, it can be pretty profitable depends, again, it all depends on how much they’re paying the driver, then how much are they able to, I guess, squeeze the hands of the restaurants.

Daniel Kline  20:46  There’s also the sneaky fee here that in some cases, the item cost more than it does in the store. Or if you order for pickup, that is something that say Instacart, which is grocery delivery, for the most part discloses, they don’t tell you how much but they do disclose it. They don’t tend to do that. And I know because a few times I’ve ordered like one coffee from Starbucks because I was working and didn’t have the ability to get there. And I was in a hotel room or someplace where, you know, normally there’d be coffee, but there wasn’t because of the pandemic. And you’re like, wait a minute, like I had that drink there yesterday, and it was under $5. Why is it like $6.95 now like that can happen. So these are stories we’re going to keep monitoring.


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