Lockdown winners have become recovery losers. Is value emerging?
- In 2021, many of the lockdown winners have seen precipitous falls
- Electric goods retailer AO.com has seen its share price fall 75% since its peak. Ocado is down 37%.
- It may be time to re-examine these unloved areas
One of the dominant characteristics of 2020 was the success of a handful of ecommerce and technology names. In 2021, many of those names have seen precipitous falls. It is a reminder of the perils of backing a good idea without taking a good look at the bigger picture.
These lockdown winners/recovery losers are particularly prevalent in ecommerce. While the growth in ecommerce has been remarkable – a near five-fold increase in growth during the pandemic, according to McKinsey – there is now a recognition that the pandemic may have pulled forward demand for certain goods, and also that ‘normal’ commerce is more resilient than people expected.
Against this backdrop, electric goods retailer AO.com has seen its share price fall 75% since its peak. Ocado is down 37%. AO.com has some supply chain problems, but the real issue for both companies has been inflated expectations. Both companies were whipped up in the lockdown winners trade and moved to high multiples, only to find the post-pandemic come-down particularly difficult.
Zoom is another company that has struggled. Its growth rate has gone from around 300% in 2020 to around 35% today. In hindsight it was never likely that Zoom would sustain its 2020 growth rate indefinitely – and certainly not when people were returning to work. Yet investors pushed its share price higher. Today, its share price is around 60% off its peak.
There are two possible conclusions here. The first is that investors have performed their usual trick, getting over-excited about a particular trend and pushing share prices up far higher than warranted by results. The other is that markets have neglected their former favourites in search of shiny new value stocks and value is now emerging.
In reality, the two conclusions aren’t incompatible. The popularity and practicality of video-conferencing is unlikely to evaporate even if people do return to the office. The question for investors is whether the Zoom share price now fully reflects those lower growth rates. AO.com has seen a 67% growth rate over two years. It is having supply troubles and has guided for zero revenue growth, but these pressures may be relatively short-lived and its share price has fallen back significantly.
The world may not have changed as much as people expected through the pandemic, but it has changed. It may be time to re-examine this unloved part of the market.
