The year 2020
has been pretty bad for the economy across the world. The pandemic induced by
the Chinese virus seemingly created havoc across countries. As countries raced
to protect their citizens, the trade-off was a lock down quite severe in some
of the countries. The economic activity had to halt to protect human lives and
prevent the virus from spreading. While the drug companies raced to be the
first to produce the vaccine, the policy makers seemed to have little option
but to restrict life and freedom till such time the clouds become clear.
Recession is being reported from across countries with many reporting a dip in
the growth well excess of 20% signalling a possible depression. The fiscal and monetary
policy both seemed to show limitations. The fiscal seemed the better of the two
with government pushing in cash transfers and stimulus to households and
industry alike. There is no doubt the spillovers impacted the market too. The financial
markets too have taken a sort of beating though they seemed to have learnt to
live with the pandemic.
As financial
markets seek to recover from Annus Horribulus for the economy and the society,
conventional wisdom would suggest not many firms would want to raise money
through their public offerings. While firms were short of funds, even a
movement towards prospective insolvency, funds too could not be raised. The surplus
lenders too would be in a deficit in the current situation. In these troubling
times, one comes across an interesting piece in the Tech Crunch on the IPOs
that hit and succeeded in the US market this year. The article is available here.
As the article
points out, to many firms, this was a year which would best be forgotten. Yet at
the same time, there are firms especially in the technology sector that have received
a boost. As with any business, there are firms which will capitalise on any
opportunity. While the pandemic induced economic disruption did bring about
damaging effects, there are firms to whom it was fertile to capture the
opportunities capitalising on the human behaviour changes. As with any disruption,
the human behaviour undergoes a change in its manifestation. The masks have become
pretty common and people tend to prefer shopping online as opposed to the
traditional brick and mortar shopping. Many of the traditional sceptics or the
laggards as they are termed adopted to the new style of online shopping. In fact,
the pandemic might be an event for Moore chasm to be crossed in many a sectors.
In this context, a few instances of new IPOs emerging as noted in this article
would be worth exploring not from the buy or sell point of view but through the
prism of the opportunities they have sought to encash on.
There is of
course an interesting case of Airbnb. It was a unicorn supposed to take the
market by storm. Yet the timing could not have come worse. Given the sharp drop
in travel and tourism, Airbnb would have been sharply hit. There might be
instances of it being reinvented as quarantine centres. However, in the broader
analysis, the pandemic is short term disruption. It is only matter of time that
people begin travelling in full steam in sort of what is being described as
revenge tourism. Furthermore, the business travel too would come back to normal
levels within a short period of time. What might be of concern to firms like
Airbnb is the quantum of surplus funds available relative to the amount being raised?
Among the firms
which have built upon capitalising on the pandemic induced change in human behaviour
is a gaming firm called Roblox. Roblox allows users to buy in-game currency to
be used in purchase and access of experience, enhanced experiences and other
assortments in the market place of Avataar. Apparently, the firm is targeting
kids. The schooling industry is perhaps the most affected in the pandemic. One
concern for parents has been to keep the kids occupied at home while they are
busy at work. While work from home has been the norm, the parents have to keep
the kids busy to enable them perform work in peace. Furthermore, if parents
have to travel out, they need to keep a tab on kids when schools are
non-functional. It is where perhaps the gaming industry might have come in
handy. The gaming industry might have long term externalities but the
inter-temporal choices usually are skewed in favour of the short term rather
than the long term. Therefore, Roblox seems to have a good year in increasing
its user base and engaging its users mostly the young. Yet as Roblox seems to
argue, the revenue increases might be a discrete event and their revenues might
drop in the coming months and years as the situation heads back to normal.
Another
interesting example given is of DoorDash a food delivery firm in the US. It is
apparent that the hotel business has suffered during the pandemic. People who
were reluctant to order food online are now increasingly adapting it. DoorDash
follows the delivery of food to the doorsteps of the customers. In the
lockdown, people tend to order more and hence their business naturally went up.
Similar would be another firm illustrated in the article, Affirm. The business
model of Affirm is offering point of sale loans to the customers. In the booming
business of e-commerce, the propensity to consume being high in the US, the
firm would have capitalised on this behaviour. The idea behind the success of
these firms also would point towards possible long term behavioural changes. People
once they get adapted to an idea or a practice are reluctant to shift. It is
possible once people get used to ordering food at home might adapt it in the
longer run thus a possible shift from cooking at home or buying ready-to-eat
packaged foods to ordering fresh food. The outsourcing of cooking, a
traditional household activity would have got a boost but it might perhaps come
with a trade-off on decline in dining out with family or friends. This would
have some implications on hotel business. Similarly, the rise in e-commerce
would perhaps witness a shift from the physical shopping to virtual shopping. Yet
what seems undeniable is firms have moved on to the kill swiftly to carve a
space and use the space to make an offering in the markets. The question of ‘revenge
investment’ in the market would have to be observed as the vaccines will hit
the market soon and people might tend to resume normal life.
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