The COVID-19 pandemic has transformed how companies view digitization and has accelerated investment in technology. As a result, companies have adapted to customer needs to deliver products and manage operations without much interruption. A presentation by Michael Laitkep, Research Analyst for S-Network, an Alerian company, examines some of the key trends in technology, how they impact businesses and investors’ opportunities.

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Kevin O’Leary, Chairman of O’Shares Investments. The O’Shares Global Internet Giants ETF (OGIG) features many of the mentioned companies as holdings.

Key Highlights: 

By necessity, the unique challenges presented by the COVID-19 pandemic forced consumers and businesses alike to adapt to an online shopping environment. 

  • Before COVID-19, e-commerce was already growing in the top two markets, China and the US, as people became more comfortable buying goods and services online. In 2020, the pandemic significantly catalyzed changes in this space.
    • A June survey by e-commerce platform Shopify (SHOP CN) found that 60% of North American shoppers had shifted more of their spending online from March to June 2020 relative to their habits before the crisis. In addition, 53% of those surveyed said that the pandemic had changed how they will shop in the future.
    • A similar study conducted in 2Q20 analyzing Chinese consumers’ spending patterns noted that 66% of people spent more time shopping online during the pandemic.
    • In September and October, respectively, Alibaba (BABA) and JD.com’s (JD) unveiled autonomous delivery vehicles and robots designed to lower the cost of last-mile deliveries and improve customers’ convenience through scheduled deliveries.
  • In addition to marketing in channels like multi-purpose messaging app WeChat, the Chinese e-commerce giants are utilizing live streams with influencers to create interest in products and promote items with short-lived discounts in a way that can generate sales while entertaining customers.

During the pandemic, small and mid-sized companies in the US and around the world have benefited from platforms such as Shopify (SHOP CN), Amazon (AMZN), Etsy (ETSY), and others that help businesses reach consumers online.

  • Businesses leverage SHOP’s platform to create an online storefront with the company’s own branding and sell directly to consumers for a monthly subscription fee. While potentially increasing seller margins, one risk to this model is that businesses are responsible for their own branding and promotion.
  • In contrast, Amazon and others like Etsy and eBay (EBAY) serve as online marketplaces with millions of users. When businesses list their items on Amazon, they gain access to the largest e-commerce site in the US and its fulfillment capabilities but do not retain personal branding as items are listed competitively with other sellers.
  • While these two models generate different sets of considerations for businesses, both can provide access to online buyers.

Even if lockdowns ease this year, the convenience of having food delivered directly to homes may contribute to some stickiness in revenue growth for this emerging segment.

  • The European food delivery company Just Eat Takeaway.com (TKWY NA) reported orders in 4Q20 were up 57% year-over-year and saw an increase sequentially as lockdowns were reinstated in much of Europe.
  • The major US takeout and delivery businesses likewise benefited from a boost in sales related to shelter-in-place restrictions, with the four largest food delivery apps more than doubling revenue year-over-year from April through September 2020.
  • Similarly, HelloFresh (HFG GR), a subscription meal kit delivery service, reported record order numbers in 3Q20 and had nearly one million more active customers in the US over the previous year.

Software as a service (SaaS) has become increasingly important as companies manage everyday operations complexities, and COVID-19 has accelerated the business adoption of technological offerings.

  • SaaS offerings are cloud-based, allowing companies to access various tools that help manage virtually all aspects of a business on demand over the Internet and have made communicating more efficient and allowed people to work from anywhere.
    • Infrastructure-based tools such as Amazon Web Services and Microsoft’s (MSFT) Azure provide a wide range of services, including cloud computing (running websites and applications in the cloud), databases, and storage. Other platforms include Salesforce (CRM), Workday (WDAY), and Twilio (TWLO).
    • Finding a way to communicate virtually has been a necessity recently, but going forward, the adoption of virtual meetings is likely to remain considerable.MSFT’s Teams, Zoom (ZM), and Slack (WORK) are examples of collaborative communications tools that allow coworkers to catch up on tasks via video conferencing, calls, and messaging.
  • While the integration of technology into businesses is not a new topic by any means, COVID-19 has driven many changes that have transformed how companies will operate going forward.

OGIGX is the underlying index for the O’Shares Global Internet Giants ETF (OGIG). OGIGX is owned by O’Shares ETF Investments.

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