April 2, 2020
Investing Strategies: Retail And Internet Trends To Watch As E-Commerce Booms

Investing Strategies: Retail And Internet Trends To Watch As E-Commerce Booms

hi everyone and welcome to Investing
Strategies it’s Alissa Coram with Investor’s Business Daily from the
Nasdaq market site in Times Square and holiday shopping season is now
officially upon us that means we’re taking stock of the retail in e-commerce
trends you should be watching and we’re getting initial insights into this
year’s Black Friday and Cyber Monday shopping results plus we’re taking a
detailed look at the chart of one of this year’s ecommerce winners and no
it’s not Amazon we’re also discussing an ETF that
helps investors gain exposure to companies benefitting from internet
enabled innovation from e-commerce to cloud computing investing strategies
starts now let’s begin with this week’s market
insights all three major indexes hit more record highs during the shortened
holiday week and for the month of November the Nasdaq added 4.6 percent
while the S&P 500 gained 3.4 percent and the Dow added 3.7 percent that makes it
the best month for the major indexes since June we also haven’t seen a loss
of greater than 1 percent for any of the major indexes since October 8th since
the new uptrend began in early October the run has been characterized by low
volatility that reflects the confident market but of course investors are smart
to be on guard for a normal pullback after such strong gains but make sure to
wait for the market to actually give you those signals before getting too
conservative too quickly just because some Wall Street pundits say the markets
getting overheated as we continue to score new highs and with that let’s turn
our attention to this week’s spotlight on retail and e-commerce the holiday
shopping season is now in full force and here to break down the key trends to
watch as Greg Portell he’s the Head of Global Consumer Industries & Retail Practice, A.T. Kearney thanks so much for joining me today Greg thank you all
right so we have seen record numbers already this year for online shopping
what are your initial takeaways so far this holiday shopping the consumer is
incredibly healthy but I think we already knew that going in what’s really
exciting is to see how retailers have really put this integrated commerce
strategy together because we’re seeing you know mobile shopping increasing
we’re seeing the buy online pick up in store being enacted seamlessly through
these retailers so they’ve really got this concept of integrated commerce
really starting to mature which is pretty exciting hmm and going a little
bit behind the curtain of e-commerce with their record numbers of packages
that need to be fulfilled and delivered that puts a lot of strain to so how are
a lot of these retailers tactically adjusting because of that well the real
challenge for all of these retailers is it’s really unknown territory we haven’t
had this much volume this fast in the history of e-commerce so that puts a lot
of pressure on the management teams to be able to react and adjust on the fly
but the two things that we’re looking for in terms of
success is one do they have the IT infrastructure to back it up I think we
saw some glitches on Friday that you go down for a few minutes
at sales paces that we’re looking at and it hurts
the second big part is how do you manage your labor exposure because all of these
stores need to bulk up on their store associates their sales associates their
inventory specialists and the key being here that consumers want connectivity
and authenticity with those sales associates these aren’t just
transactional roles anymore right so do you think that that’s one of the big key
differentiators then I mean we hear a lot about e-commerce behemoth Amazon
taking a lot of share from the online side so what are the different ways both
online and offline that these other retailers are trying to compete well
it’s interesting because if you’re going to do chores
if you just want convenience then online is going to win every time now online
pick up in store maybe that’s a little bit of a wrinkle but it’ll go definitely
to something that is quick and frictionless what we found when we
looked at gen Z consumers they actually liked the experience in stores and in
order to fulfill that and meet that expectation retailers need to invest in
those sales associates that know what they’re talking about that buy the
products they’re trying to sell and can actually explain and help a shopper sort
through the various different options right and then I think in terms of the
the Black Friday shopping extravaganza trying to fight all the crowds that
might be one benefit to online shopping so for this particular past weekend is
is there a difference there or is the experience still something that is
valued even when there’s heavy crowds well that’s really the paradox Alissa so
we were talking I was talking to a client of mine just over the weekend and
they were trying to find that balance because we know consumers like the
experience there’s nothing good about the experience of Black Friday
particularly when it’s raining and the weather’s bad so finding that excitement
of the celebration the the reason to bring people into stores for special
experiences that’s an important part of Black Friday
if you just rely on price discounts right you’re gonna push people online
which is an okay strategy because we need to get past this divide between
online and physical it’s all about the integrated experience at this point yeah
how do you speaking of the discounts how do you think that the strategy around
that has evolved over the last several years especially since now it’s so easy
to compare all of the different prices for the discounts well what’s
interesting from an investor standpoint it makes it really challenging because
sales at low margins aren’t necessarily healthy sales so what we’re encouraging
clients to do is really use that merchants muscle so if I’m looking at a
company and I’m trying to find out if they’re going to be successful this
holiday season or not I really want to understand how have they invested in
merchant capabilities because yes they’re gonna sell that one product at
70% off but what else can they get in your shopping basket at a higher margin
and that’s the magic of the merchandiser and that’s a critical success factor on
who will win and who will lose from a profit perspective after the holiday
season do these retailers use of Black Friday and Cyber Monday as an
opportunity to take market share away from other competitors beyond just the
holidays or how do they approach that I don’t think we’ve gotten to the point
where retailers really use these commercial holidays for loyalty I mean
they’re really doing two things they’re generating buzz and they’re trying to
get a spike and get some attention during the holiday season which is
always important and then the other piece is they’re really trying to
activate their loyalty programs you figure retailers have spent hundreds of
millions of dollars at this point on relationship management software’s they
need to get a return on that and that all comes back to knowing your consumer
if they take that consumer centric lens they’ll find a lot more success hmm and
speaking of customer loyalty what has your latest research shown you about
where consumers are shopping when you talk about the overlay of some of the
hot political topics or are socially responsible topics that we’re hearing
about what we’re finding is consumers really value a an authentic reply so if
you think about the speed with which companies are working nowadays they have
to work much more with much more agility much
closer to the edge that brings on more risk so companies are going to make
mistakes particularly when they rely on frontline employees that are somewhat
transient and employment so that’s always going to be there is a risk for
retailers and consumer products companies the the expectation from
consumers is not that you’re perfect but when you make a mistake and you identify
that mistake that you own it and you fix it it’s not a press release won’t get
you by anymore you have to make systemic change when there’s a real problem and
consumers will move on interesting well it sounds like the key to the holiday
shopping season is cracking the code of both online and offline
it’s understanding that it’s just commerce its integrated commerce
consumers don’t shop by channel they shop by product they shot by presence
they shot by recipient that’s how you really define success is when you’re
looking at on the consumers terms and that’ll really make the big difference
interesting all right well thank you so much for the enlightening conversation
thank you alright and coming up after the break I’m taking a look at the chart
of an e-commerce winner and another big name that’s been lagging in the group
we’ll be right back are we ready to do this okay here we go
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a profitable holiday shoppers are making purchases
online in increasing numbers with Black Friday e-commerce sales hitting seven
point four billion dollars this year an all-time record for that day
and while Amazon is an e-commerce behemoth other top retailers are upping
their game to compete with Jeff Bezos and it extends beyond just Black Friday
target is a great example of a company that’s investing in its e-commerce
strategy and benefiting target saw online customer spending increased a
whopping 47 percent during the first two weeks of November from last year while
Amazon’s customer spending grew 32 percent during that same time frame
that’s according to Edison Trends now this is a weekly chart of target here
and it seems strong gains this year it’s almost doubled and the last couple of
months have been notably strong providing investors several buying
opportunities now target broke out of a long consolidation on its late August
quarterly earnings report which showed earnings growth of 24 percent that
marked a second quarter of acceleration the retailer also gapped up on its
latest quarterly report on November 11th when we saw more acceleration in
earnings to 25 percent for the quarter target also saw comparable sales for its
digital channel growth 31 percent in q3 on top of 49 percent growth last year
same day fulfillment services accounted for some 80 percent of targets Digital
comparable sales growth now both of these breakaway gaps on earnings are
opportunities for investors to buy shares now it might seem a little
counterintuitive when you see a stock surging big like that but I badies
research actually shows that these moves are often the precursor to even further
gains and the proof of that is right here now let’s take a look at this
current action a little closer on a daily chart and what we’d like to see
from here after this latest gap up that scent shares some 14% higher in one day
would be for target to hold these gains and so far the stock is holding gains
and trading in a relatively tight range and for investors who miss these
breakaway gaps wait for another proper entry to form and swing traders could
look for the stock to clear a short consolidate
as a chance to get in now let’s quickly contrast targets chart with that of
Amazon here now the e-commerce giant hasn’t really gone anywhere the last few
months shares are currently consolidating and are hitting some
resistance at the 40 week moving average that’s this gray line here while Amazon
has been a huge long-term winner this just goes to show you that you shouldn’t
let that alone be the determining factor for buying or holding a stock because
you could be missing out on other socks like target that are rocketing higher on
a big fundamental story okay so when we come back we’re taking a look at an ETF
that’s all about capturing gains from companies benefitting from the
Internet’s enables innovation trend we’ll be right back this season on cultural capital we are
in New York City and San Francisco come with me as I tour some of the world’s
most innovative companies from Squarespace to c3a I get e & figma learn
how CEOs build growing companies while maintaining the ultimate office culture
on season three of cultural capital on the brand-new Nasdaq calm welcome back everyone and joining us now
to discuss one way investors can gain exposure to companies benefiting from
internet enabled innovation is James Wang with ARK Invest he’s an Analyst on
their next generation internet team thanks so much for being here today
James thank you listen alright so when we’re talking about this next generation
internet trend there’s a lot of different industries that fall under
this category yes the way to think about it our strategy we have top four level
themes in this in this strategy we focus on e-commerce
we focus on cloud FinTech increasingly and artificial intelligence these are
kind of four broad buckets that most of our companies fall under and each of
these are multi hundred billion dollar industries and at different levels of
maturity in this strategy we’re basically trying to help investors
discover what is the next wave of the Internet
lots of people talk about kind of today and Fang a lot of that is in the past so
being active managers we’re trying to trace the path forward for the future
and with it being in the middle of the holiday shopping season I think a lot of
people are focused on e-commerce in particular so what are you seeing in
that space that is really shifting ecommerce is such an enduring theme
right it was one of the first technologies and business models
actually worked for the internet amazon’s probably the only company off
that era that is still mega successful today so we remained have amazon the
portfolio but when we look at it the strategies and the way people are the
companies are acquiring customers in the way they monetize it’s much more
different today than it was and one area that’s so obvious is China they have
e-commerce penetration as a share of retail that’s twice as high as the u.s.
they have by far the most advanced e-commerce penetration globally and a
company there that is just completely rewiring the way people buy online is
called pin duo duo PDD is the ticker and that’s one of our top positions he rkw
just to give you context pin to a duo is doubling its revenues every year last
quarter it reported more than a hundred percent revenue growth at a three point
six billion dollar revenue base that’s simply unheard of you can have fast
growth or high revenues but very rarely do you have both Amazon when they were
at about 3.6 billion dollars in revenues was grow
thirty percent so it’s growing four times the scale of revenue just given
the conditions of China and where we are in the internet cycle and the fact that
PDD has a bigger waiting in this ETF than the likes of Amazon and even
Alibaba what do you think that that says about the strategy that you guys are
taking with this ETF so most ETFs are passive products ARKW is a fully
actively managed ETF so it behaves it is managed like a mutual fund or a hedge
fund but it’s traded like an exchange fund so it’s very transparent and easy
to own if you will so we can we can take very strongly opinionated bets not just
based on market cap or some smart beta indices but based on fundamental
research we do and PDD we’ve just discovered that their their selling
model is completely disruptive relative for everyone else
for example people compared to Groupon as in its it’s a group buying site right
a lot of people come together to buy something at a discount but with Groupon
the company had to set up the deals the company had to call up Starbucks or
Joe’s coffee and say hey will you put together a deal so it’s a very slow
model and it never succeeded it’s one of the most famous internet flops in fact
in in us kind of internet space but P needed’ that the deals are done
organically among users so it’s literally Joe and and Lisa and a bunch
of people getting together I said hey would you like to buy a bunch of
watermelons or peaches or toilet paper together and it just forms organic deals
almost like a social network online and people start buying it sounds a bit
crazy for us it doesn’t sound like anything we would do but China have the
consumers there just have such different social norms there’s so much more open
to new ways of doing things that you can build the entirely new e-commerce models
in China so it’s just a much more exciting market yeah well it sounds like
a very interesting fundamental story to watch and another area that’s in the ETF
is payments so I mean how is that area evolving PayPal seems to be a one that’s
thought of as an incumbent but what’s what’s the shake-up happening there so
the shake-up is PayPal you know was one of the original companies that along
with kind of Amazon in that era Peter Thiel Ilan must started that
company and it did great in the web era of the internet the PC era of the
Internet but once things went mobile they just
didn’t really wake up and fully embrace mobile and so new competitors have
emerged memo is probably the most successful in the West that we know
about I’m sure we all use it to pay you know split dinners and things like that
so they acquire Venmo and that that has given them kind of a
new new leg up in this kind of new way of doing doing payment mobile payments
but what we found is that actually wallets had to have great success a
great growth story this growth has slowed down dramatically when we look at
we’ve looked into some very specific data they’ve slowed down specifically
and Square is in fact growing much faster than then demo is right now
Square is especially growing in the interior of the US where as memo is kind
of more of known in kind of coastal areas but our expectation is that over
time Square has a real chance of overtaking them oh and really capturing
more of the peer-to-peer payments and the way people use Square cash is also
very different they use it more like a bank they use it for kind of payday
advances and and banking services and there’s just a huge difference in the
value of what a square customer is worth and what a what a banking customer is
worth like a typical bank or Chase will spend on the order of a thousand or two
thousand dollars to acquire a customer with square cash it’s purely digital
just download through the app store maybe your friends will send you a
referral code the cost of acquisition is on the order of like $20 so you have
it’s three orders of magnitude adjusting customer acquisition cost which is
extremely disruptive to the banking model you know Oh 809 has been extremely
disruptive for finance as a very very large scale above the scale of financial
institutions but we haven’t really had products that really disrupt and change
the way people use these things people are not really paying attention to this
people think it’s kind of a toy it’s kind of a low-end
problems being solved they’re splitting a dinner and things like that but these
people are going to end up as customers for life for these platforms and these
companies eventually will be treated like thanks interesting yeah I agree I
don’t think enough is being paid attention to that I definitely learned
something new there and then also tell us about Tesla being a
you’re holding in this ETF of course in the headlines
I feel like always but especially a late resurgence and that with their cyber
Trek why is Tesla such a big part of the next-generation internet story exactly
right it’s an Internet fund why does it own an automaker it’s because Tesla is
doesn’t view itself as an automaker and it’s business where it is where its
business is going is not just about building and selling cars right yes
today most of it is about manufacturing but if you look at what its actual
competitive advantages are easily the incumbent it was the first to switch to
EVs in a big way it basically forced the whole world the whole evie industry to
scramble two V’s I’m very similar to what Apple did when they launched the
iPhone but more importantly they’re they have a very particular vision about how
they’re going to execute to become a car company that provides autonomous
transport which we eventually basically be a taxi fleet we can debate the
timelines on that but essentially it’s key advantage there is is that it is
executing artificial intelligence at scale using a data-driven approach when
we when people talk about if when you talk about people who are following this
industry closely they they say oh wow the the whole hype about autonomous
driving has been pushed out because it’s way more difficult everyone is stumbling
that is true everyone is stumbling but everyone is using basically the same
approach of a small amount of data or a moderate amount of data collected using
a fleet of maybe a hundred test vehicles and in trying to generate an AI
algorithm that can drive itself the data is just not sufficient for the
complexity of the problem Tesla’s approach is completely different than
everyone else’s so when you say the approach is failing
it applies broadly to everyone but it doesn’t apply to Tesla Tesla main may
still run into its own issues but at least those objections do not fall on
Tesla basically they have a fleet that is growing by the day that is sending
data on how people drive and it’s AI algorithms can learn from how people
actually drive and imitate that process and no one else is doing it using this
approach so they have this unique potential to succeed based on this and
if they do their whole margin structure their revenue stream will be driven
around a services model and it will be the biggest biggest
business model shift since maybe Amazon to AWS right I think the vision aspect
is very compelling but when you look about the price performance it’s
definitely been been more choppy so when do you think that Tesla can get past
some of these hurdles and issues that you’re talking about and really be a big
winner price-wise right so Tesla’s unit shipments have basically not grown in
the last quarter and they’re really just waiting for the cyber the Giga factory
in China to open up they’ve committed to building one also in Germany so really
it’s about ramping production right now most of the valuation around Tesla short
term by the market is around how many units of cars that can sell once China
basically ramps up I think we’ll get we’ll get some appreciation from the
market around that I think the cyber truck pickup orders people are not
taking seriously at all they have 250,000 reservations right now if 50% of
that converts that’s going to be on the order of six billion dollars in revenue
people don’t believe seem to believe even with those reservations that it’s
gonna happen granted is $100 reservation but the people who are people said the
same thing with the model three it was a thousand dollars and people are like
it’s not clear people if people will buy it in the end the chatter what I’ve
heard and I’ve even just heard friends moms put up put down reservations for
this thing it is well I think people were expecting this thing to be a
complete dud and it is completely throwing mud in their face I think once
there once people start once you start seeing actual shipments the narrative is
going to change in a big way all right well Tesla a big component of this ETF
and when we take a step back performance-wise ARKW has has been
doing pretty good for investors lately so do you feel like we’re still in the
early innings of where this whole trend could be going yeah ARKW is up about
28% this year versus 25% for the SMP the Internet as the technology is is
basically it’s not one thing anymore it’s multiple sub themes like FinTech
and ai and it’s each at different levels of maturity I find it very exciting to
follow this theme because something new is always going is always about to
happen and our whole thesis is trying to capture
that when it’s at kind of a 10% issue inflection point so for example for
artificial intelligence with the press everything everyone isn’t beating it to
death and it seems like an old idea but it hasn’t even started I mean most
companies hadn’t even started using it we are barely starting to use it so it’s
extremely early and that’s going to be an easily multi trillion-dollar
opportunity once all set is done and yeah I mix I’m very excited to
follow it through I think I think like investing in themes like that is as
durable as investing in e-commerce more cloud maybe five years ago and it’s it’s
one of those themes you can really hold on and grow rather than try to find new
ideas every six months well thank you so much for such a wide-ranging discussion
today it’s definitely a very interesting space to watch thank you thank you
and thanks everyone for watching Investing Strategies next week on the
show it’s our final episode of season one and we’ll be giving you insights and
to investing trends to watch and portfolio strategies to consider as we
wrap up 2019 and head into 2020 until next time i’m Alissa Coram

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