Welcome to Thoughts on the Market. I'm Brian Nowak, Equity Analyst covering the US Internet industry. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about key trends and themes for Internet stocks as the US looks toward reopening. It’s Tuesday, March 23rd at 11:00 a.m. in New York.
Earlier this month, Morgan Stanley held its annual Technology, Media and Telecom Conference - something particularly notable to me since our conference last year was one of the last big public events before Coronavirus lockdowns began.
This year, we naturally held the conference virtually, and although it was certainly a bit different than being in person, it reminded me of how extensively the Internet became a lifeline for many of us in the last year. One has to wonder what the pandemic would have been like if we didn't have the Internet to help us shop for groceries or keep up with the news. If we weren't able to keep the kids occupied for hours with streaming video content or online gaming. Or how would we have stayed connected with friends, family and loved ones without social media?
The implications of this massive reliance on the Internet, and of course the implications of reopening later this year, is what I'd like to talk to you about today. Coming out of the conference, these two notions seem to thread throughout many of my conversations with corporates and clients, with a few big themes standing out.
First, during the conference, multiple companies across the Internet space talked about an acceleration in digital transformation. Digital behavior shifts throughout the pandemic have structurally changed the way consumers shop, communicate, move around, and entertain themselves; as well as the way businesses need to reach these consumers. Because of this, tech companies' reach and consumer engagement offerings are continuing to transform and improve. Consider some new recent products around augmented reality lenses, social gaming and mapping, just to name a few. These tech companies’ leading audiences, combined with the multi-year investments in artificial intelligence, privacy protected targeting, and monetization tools, help position the technology companies to deliver durable, multi-year, cash flow growth.
Second, short form video and audio messaging are now top of mind for the social platforms. We see short form video as the next key enabler of social engagement - something we heard platforms echo during the conference. We also expect audio to be a larger focus as well, with some of the major social platforms talking about, or even announcing, audio messaging products.
Third, we think 2020 pulled forward about four years of video game user growth. And these users are doing more than just playing video games, as we see increasing use cases around chatting and socializing. Moving ahead, we think these expanded user bases, combined with these new social use cases, are going to make video gaming more resilient than a lot of investors appreciate as the world reopens.
And finally, as the pace of vaccinations and optimism around reopening accelerates, we're seeing signs that consumers are primed to spend and further engage with the leading technology companies. Ridesharing names spoke to stronger trends in February than in January, as the world tilts toward reopening, and people are even starting to plan vacations. One travel site mentioned strong demand for summer travel as consumers book trips ahead of our post-vaccinated world. One online apparel company mentioned seeing sequential monthly improvements from both a demand and supply perspective. These budding consumer green shoots, improving vaccination rates, and the strong U.S. consumer balance sheet, could mean a prolonged consumer recovery that could benefit consumer-facing Internet companies across the board. After all, when people travel and go out, they search for places to go and things to do, they use ride sharing applications, share photos and videos on social media, and they buy clothes for those going out occasions.
Ultimately, the debate around online stickiness versus rebound may be less about whether consumers will return to old pre pandemic habits, and more about which behaviors have now simply become part of our lives structurally.
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