To borrow a few lines from Jerry Garcia and his pals, somewhat liberally: Trouble behind, trouble ahead — and you know that notion just crossed our minds …
That the dismal performance, to date, and perhaps, to come, in connected economy (CE) stocks does not accurately reflect the CE’s potential.
Rather, the fault lies more with the investors who thought, and hoped, that triple-digit percentage growth rates would remain in place as far as the eye can see.
Slowing growth rates do not mean that the digital transformation is a ruse. But the slowdown does signal that some CE pillars are, in a sense, maturing, while others might be taking a breather. The frenzied trading on the Street seems less about fundamentals than it is about fretfulness that nothing travels up and to the right, indefinitely, in a straight line (really, though, we note: nothing really does).
To be sure, the CE100™ Index has had a dismal time of it. As reported on Monday (April 25), the Index is off more than 24% year to date.
Read also: CE100™ Index Drops as Investors Flee ‘Fun’ Pillar
Recent earnings reports, depending on where you look, indicate that the sailing is anything but smooth for some of the pillars.
Exhibit A, in just the past few days, can be found in streaming media, in the movie/content and gaming firms that kept us engaged during the pandemic. Netflix’s subscriber losses and 36% stock drop last week point to the fact that revenue growth is slowing.
But again the key word here is growth is still in the cards — just not at the hyper-charged rates that had been seen as we all scrambled to live life more fully online. In its report Netflix reported that the slowing growth is due to the “COVID pull forward.”
Inflation is the wildcard, indicating which pillars are seeing a pull forward, where growth will be relatively muted moving forward. In the ConnectedEconomy™ Monthly Report: 3 Ways Consumers Are Dealing With Inflation, April 2022, consumers are reigning in spending, focusing on the essentials. That spending, to put it simply, has been focused on goods, on healthcare, on the key items that keep us going.
Overall eCommerce spending dipped, as a percentage of engagement, and stands at 40% of US consumers, down from 42% — and that pattern, we note, may be why the “shopping” pillar of the CE100 pantheon, as measured by stock performance , is down 42% year to date.
But the digital transformation is no fad borne aloft by the pandemic alone. Drill down a bit and there are signs of pivoting within the ways in which we engage. Online restaurant orders may be slowing, but digital grocery purchases are up (slightly) as our data show.
The shift, then, is that belt-tightening in one digital activity gives a tailwind to another digital channel. Growth is not distributed evenly — but that doesn’t mean, as Wall Street’s performance implies, that for the digital transformation, it’s game over.
Read more: 6 in 10 Consumers Buying Only the Essentials as Inflation Rises