A decade is a long time. In a world where everything is changing in a matter of weeks, talking about what could happen in the next 10-year stretch, when both the novel coronavirus and the economic lockdown meant to bring it to heel are still wreaking havoc, may seem premature.
But thinking in terms of years rather than weeks and months is key to being a successful investor. Hindsight is 20/20, of course. We can look back on the 2010s and see that mobile tech, cloud computing, and subscription business models were some of the best investment motifs. Many of those trends will continue to build momentum in the 2020s, though, and the COVID-19 pandemic has cemented them and adjacent industries into place — increasingly less disruptors of the status quo, but rather the new status quo.
To that end, here are four investing themes that are quickly becoming well-established movements for the decade ahead.
1. Direct-to-consumer services
Thanks to advances in cloud computing and communications, technology has come to the point where reaching consumers directly at home is now possible. Netflix (NASDAQ:NFLX) proved the viability of the business model — based on a recurring subscription and consumed via a high-speed internet connection — as well as demonstrated the massive demand lurking among households.
Many businesses are now tapping into the movement for themselves. Some notable examples are Nike (NYSE:NKE), which has a complete direct-to-consumer ecosystem built out that is increasingly bypassing retailers completely. The sneaker king’s operations span its workout app to a shoe subscription service for kids. Another is Disney (NYSE:DIS), which has taken a cue from Netflix and is off to the races with its own direct-to-consumer streaming services Disney+, Hulu, and ESPN+.
The ability to reach customers at home — or wherever they happen to be — is set to expand beyond the world of retail and entertainment, though. Healthcare is in the early stages of turning into a consumer-driven industry. Teladoc Health (NYSE:TDOC) has gotten a big boost from shelter-in-place orders, with quarterly virtual visits with one of its healthcare professionals accelerating 92% year over year to two million in the first quarter of 2020.
Pairing ongoing fear of the pandemic and the convenience of new communications tools, businesses across many industries that can tap into the direct-to-consumer trend should do well in the years ahead.
2. Small business-powered e-commerce
When recession strikes, small businesses are among the hardest hit from contracting economic activity. This go around has been no different, with restaurants, gyms, and other establishments reliant on in-person interaction taking it on the chin. However, while the effects of the lockdown to halt the spread of coronavirus are only just beginning to be understood, it hasn’t been a total disaster for small business.
In fact, with many households stuck at home, e-commerce has surged higher — up some 22% year over year in April alone, according to the U.S. Census Bureau’s numbers. And with job losses mounting, many are looking for new ways to make money via their own venture based on the internet. Younger generations of shoppers have also been demanding variety for years, and the internet (and the myriad new businesses on it) has helped satisfy that desire. That has been a boon for website-building and online store management platforms Shopify (NYSE:SHOP) and Wix.com (NASDAQ:WIX), as well as craft and homemade goods marketplace Etsy (NASDAQ:ETSY).
While some customers are indeed struggling under the weight of the current crisis, Shopify’s overall numbers in Q1 2020 illustrate the power of small business in the digital age. Total revenue increased 47% to $470 million, and new stores built on its platform surged 62% higher during the six weeks from March 12 to April 24. Whether the elevated numbers are sustainable or not, the data shows that shopping is moving online at an even faster rate than before, and small businesses are looking for ways to adapt.
While the recession is sure to lower overall economic activity for an unknown period of time, as that activity comes back, small businesses operating in a digital format are all set to capture the lion’s share of the spending.
3. Digital banking and peer-to-peer payments
Digital transaction stocks were huge winners in the 2010s. The world is slowly moving away from cash as the de facto method of exchanging goods and services, but many corners of the globe still rely heavily on the old way of doing business. Thus, digital transactions should continue to benefit in the next decade, especially with e-commerce continuing to gobble up market share.
However, digital transactions are more than just credit card and e-commerce enablers. They can also help businesses reach and sell to new audiences they may not otherwise have physical contact with. PayPal Holdings (NASDAQ:PYPL), which also owns peer-to-peer payments app Venmo, is demonstrating this with its most recent acquisition of Honey Science. The digital coupon and deal finder reportedly had a 180% increase in new accounts in April as social distancing took hold. Paired with PayPal’s approval to accept federal stimulus payments to individuals and businesses, it’s a powerful combination that is helping rewrite what it means to provide banking services.
Square (NYSE:SQ) is another non-bank provider that was approved to process federal stimulus payments. It too is stitching together all of a banking consumer’s financial needs in one place with its small business services via its namesake segment and Cash App for individuals. As for Cash App, it combines a digital wallet (kind of like an online checking account) that can receive and make payments to peers and businesses, a debit card linked to the online account for physical transactions, and investing in individual stocks and cryptocurrency.
What started as a disruptive movement against cash is now tackling the banking world at large and combining it with features of digital commerce. Bringing that kind of simplicity through a single point of financial management is picking up steam during the coronavirus crisis.
4. New communication networks for “smart everything”
Over the last decade, growth in faster telecommunications networks and cloud services helped foster an age of mobility dominated by the smartphone. The cloud should continue to be a high-growth industry in the next 10 years as well, but an explosion of data that needs to be processed closer to the source is leading to the opposite of the cloud: Edge networks.
Data processed at “the edge” of a network rather than in a centralized data center is an easy enough concept. A smartphone that computes information and makes requests via a mobile network for a user is an example of a device operating at a network edge. However, new 5G mobile networks could open the door to new use cases. For businesses, making use of AI is an example. A data center will be responsible for training an AI system, but a device needs to receive and execute those instructions. An example of this could be a manufacturing operation. AI that manages functions of the manufacturing line is trained in the cloud, delivered to the devices and robotics at the facility, and managed via an internal 5G wireless network within the factory.
Verizon (NYSE:VZ) is leading the charge in this iteration of 5G here in the U.S., but one of the most profitable ways to bet on new mobile communications tech are hardware and software providers. NVIDIA (NASDAQ:NVDA) has emerged as a leader in this department, steadily releasing a slew of devices and software addressing data centers and cloud computing, networking, and edge devices themselves. NVIDIA calls this the “smart everything” movement and thinks that in the next decade, there will be billions of new devices — from cars to whole manufacturing plants — that make use of mobile networks and have need of computing data at the network edge.
Effects from the coronavirus crisis will likely be dealt with for some time, but technology is helping bridge the gap and emerging once again as the dominant investment trend of the decade ahead. Social distancing and related practices could be a lingering aftereffect for organizations and individuals to adapt to, but the digital world is well suited to help. Thus, I think direct-to-consumer services, e-commerce for small businesses, digital payments, and new mobile networks will be high-growth areas to invest in in the decade ahead.