At the outset of the coronavirus pandemic, a new genre of hot stock was born: Lockdown Stocks. As much of humanity shifted from in-person to online modes of shopping, communication, exercise, and entertainment, consumer spending shifted as with them. This created serious problems for companies in sectors that are entirely unable to provide services in a virtual format like airlines, but serious opportunities for digitally-focused companies attempting to implement disruptive business models.
We've written previously about Zoom Video Communications, and watched as its shares reached peaks around 700% above their early 2020 value. As a brief recap - Zoom was well positioned to step in and provide businesses with the solutions they needed to keep business moving in a time when workforces were stuck at home. Clearly Zoom has real value, but few would argue that the coronavirus wasn't a bit of a lucky break for the company. Absent a global pandemic would it really be growing as fast as it is now? Likely not.
On November 9th, 2020 Pfizer and BioNTech announced that they had developed a vaccine for COVID-19 that was more than 90% effective in preventing infection. Immediately, shares of Zoom fell 17%. This strong downward move was echoed across the public markets in shares of companies that, through fortunate positioning or good strategy, were able to capitalize on the dynamics of the pandemic-era economy. Shares of Peloton fell 20%. Shares of Etsy were down 17%. Shares of Clorox fell 11%:
The primary thing each of these companies have in common is that they each benefit due to the conditions imposed on everyday people by the coronavirus pandemic and associated lockdowns. Clorox, for example, has sold record amounts of cleaning supplies as people, businesses, and hospitals work to minimize the risk of coronavirus transmission by sanitizing everything in reach. Similarly, Peloton saw a massive uptick in purchases of its signature indoor cycling apparatus and advised that supply shortages were likely to persist for "the foreseeable future" as they struggled to produce enough bikes to meet demand. Etsy, for its part, has facilitated furloughed workers turn hobbies like crafts and jewelry making into supplementary income.
With Pfizer's announcement of a viable vaccine, investors have been forced to think about what a return to "normal" will look like for the Lockdown Stocks that have been able to make millions turning humanities' collective lemon into lemonade. Take Peloton for example - if the pandemic lifts, what will he impact to equipment sales be? Has everyone who is likely to buy a Peloton already bought one? Will consumers cancel their memberships and return to the gym or continue to pay the monthly fee the company collects from equipment owners? Similarly, if office workers are able to return to their cubicles, how will Zoom's paying customer base change? Will workers prefer to return to communicate via emails and phone calls or is videoconferencing here to stay?
Thinking about these companies illustrates just how much the pandemic has changed the texture of everyday life, the products we use, and the activities we pursue. For investors, the fundamental question is how much of this change is going to be permanent and how much will fade as the pandemic is relegated to the pages of history books? The answer will determine how the market values the Lockdown Stocks on a go-forward basis. In the meantime, November 9th gave investors a preview of what could be in store for companies whose value has been temporarily inflated by pandemic era conditions.