Even in crisis, there are shares that shine
Airbnb, Apple and Microsoft have all beaten the Covid blues, and they’re not alone
Savvy investors know that money can be made in any market and that there will always be companies that survive and thrive, irrespective of market conditions.
Some of the dominant investment themes that have become apparent as a result of Covid-19 include the rapid acceleration in technology adoption, robotics, automation, the importance of artificial intelligence and machine learning, and the work-from-home trend, says William Meyer, the founder and CEO of Fenestra Asset Management.
Taking Airbnb as a case study, he says the company’s initial public offering in early 2020 was eagerly anticipated given that the brand had totally disrupted the travel and leisure industry. “But it seemed Covid-19 had dealt it a death blow with a decade of hard work and innovation seemingly destroyed in a matter of weeks.”
The company eventually listed on the Nasdaq in December 2020. Its shares were $68 a share but quickly started trading at $150 a share, ending its first day of sale at $144.70, a price that valued the short-term rentals company at close to $100bn.
“The last valuation for Airbnb was agreed at $18bn, when the company borrowed $2bn to ensure its survival in the depths of the Covid-19 crisis,” says Meyer.
“The company earned $219m on revenue of $1.34bn in the third quarter, which was down 19% from the year before.
“Though Airbnb was forced to cut 25% of its staff, the business has come back strongly. Rural rentals surged as people looked for safe escapes which compensated for the falls in the big cities.”
While Airbnb has been a huge beneficiary of the work-fromhome trend, for the company this shift has become the work-fromanybody’s-home trend, says Meyer. In addition, there has been an expected increase in the length of visitors’ stays.
“Airbnb’s business model is flexible, resilient, able to pivot and valuable to hosts and travellers seeking a safe environment during the pandemic. It has become a globally recognised brand with its huge community one of its greatest assets. The number of guests that post reviews continues to grow, while repeat guest revenue is now at 69%,” he says.
“The company came from nowhere and has become the most successful and largest travel and accommodation business in a generation — all without owning any hotels.
“It has grown from a weird and crazy idea to a new verb and is ubiquitous to the hotel industry and millions of travellers.”
Another survivor and thrivor is Apple. “Apple’s market dominance continues and the company’s share price and valuation scale new heights, almost daily, creating a mind-blowing valuation,” he says.
“It took 38 years for its value to hit $1-trillion two years ago. It recently crossed the $2-trillion mark and the share price didn’t stop there, crashing through $500 a share and continuing higher.”
Last year, the company split its stock four for one to make the shares more accessible and afford$17.9bn
What it means:
able for smaller investors. Its shares continue to rise ahead of a new super-cycle of 5G iPhones coming to market.
Meyer says that while a share split does not change the value of the company, it may increase demand and make it easier for some shareholders to sell a portion of their shares.
“I have been advising clients to buy Apple shares since 2011. At the time they were traded at $50 a share. Every year I’ve continued to urge investors to buy Apple. There is no question that investors need to go with the trend — and for now this trend is certainly up.”
Another great investment, he says, is Microsoft. “In late January Microsoft reported earnings for the fourth quarter of 2020, and they were superb.”
The company reported that revenue had increased by 17% to R43.1bn — more than R40bn for the first time. Operating income was and increased 29%, while net income was $15.5bn, an increase of 34%.
Microsoft CEO Satya Nadella attributed the company’s success to the dawn of a second wave of digital transformation sweeping every company and every industry during 2020.
He said the new currency driving every organisation’s resilience and growth is building their own digital capability, and Microsoft is powering this shift with the world’s largest and most comprehensive cloud platform.
According to Meyer, as far as Microsoft is concerned, “this is just the beginning of the second wave of the digital transformation supertrend. It is clear that the company has serious ambitions as far as cloud platforms are concerned, which all points to the fact that investors need to urgently position their portfolios accordingly”.
Meyer says Airbnb, Apple and Microsoft are just some examples of survivors and thrivors. “There are hundreds more companies like these, and they need to be the focus of the most research and capital allocation.”