5 Winners in a Minimum Wage Hike

One of the bigger surprises in President Barack Obama's State of the Union address on Wednesday night was a call for raising the country's federal minimum wage requirement.

Obama argues that $7.25 an hour is too low for poor families and entry-level hires to make a living. He wants legislators to bump that rate up to $9 an hour.

The market's reaction yesterday was understandable. Many fast food chains and mall retailers that often shell out minimum wage rates to their front line of hires fell slightly. Their labor costs would naturally rise, and then it's a matter of either investors or consumers eating the difference.

However, let's take a more optimistic view of the matter. A higher minimum wage would translate into those employees having more disposable and discretionary income.

There will be some winners out there if this does go through, especially for companies that reach this target audience, but do so with a workforce that's already making more than minimum wage.

Let's go over a few companies that stand to benefit from a move like this.

Facebook (NASDAQ: FB  )
The leading social networking website operator obviously isn't paying its developers and engineers the minimum wage, yet a lot of young people making $7.25 an hour make up a good chunk of the site's billion active users.

Facebook's revenue climbed 40% in its latest quarter. A whopping 84% of that comes from advertising. If marketers see that Facebook users have more money to spend -- and, in theory, they should if the minimum wage goes up -- they will be willing to spend more to reach them. From a user perspective, the balance of Facebook's revenue comes mostly from money that users spend on virtual goods purchased on the site's diversions. Naturally, that would be another winning category if young 'uns had more money to spare.

Netflix (NASDAQ: NFLX  )
There are no advertisers at Netflix, but when you reach more than 33 million streaming customers with an attractively priced streaming subscription model, it clearly helps to have more people willing to spend $7.99 a month for unlimited access to a growing digital vault.

That $7.99 a month is going to seem even more compelling when its less than an hour's wage.

Five Below (NASDAQ: FIVE  )
This will be the only traditional retailer on the list.

Five Below runs a fast-growing chain of stores where everything sells for $5 or less. Dollar stores are a dime a dozen, but Five Below has been able to convey a "cheap chic" message that has made the retailer popular with young shoppers.

Sales through the eleven-week period ending Jan. 12 soared 34%. Expansion is a major part of that, but comparable store sales were also up a healthy 4.2%.

Like most strip mall retailers, Five Below probably starts its employees at or just above the minimum wage line. However, Five Below will be one chain that will more than make that back in increased sales.

Microsoft (NASDAQ: MSFT  )
Let's talk Xbox.

There are now 76 million Xbox systems out there, and the average gamer spends 87 hours a month on the console. A major draw to Xbox over rival platforms is the Xbox Live Gold subscription, where users pay $60 a year for a growing gamut of online engagement. There are now 46 million Xbox Live subscribers.

As the minimum wage grows, expect more young Xbox owners to pay up for Xbox Live Gold plans.

Google (NASDAQ: GOOGL  )
The same circumstances that will milk more money out of advertisers at Facebook will also play into Big G's coffers.

Google can use it. The cost-per-click through Google has declined 6% over the past year. The shift to mobile usage is a major part of that, but it's something that will naturally be helped if advertisers feel that online users are worth more to reach.

Google tosses out a slightly wider net than Facebook in terms of who it reaches, but then we get to Android and Google's hardware initiatives.

Google is teaming up with partners to put out dirt cheap Chromebook laptops and Android tablets. There is also the growing popularity of Android, in general, as a mobile operating system. Since it's open source, manufacturers can put out cheaper smartphones fueled by Android than they would through other platforms.

Even $9 an hour isn't going to drum out too many incremental smartphone owners. Data plans are expensive. However, it will be a factor for high school and college kids working for spending money as dependents.

Increasing the minimum wage hike will be a politically divisive issue; but, for investors, it helps to start keying in on the beneficiaries.

More on Netflix
Can Netflix fend off this burgeoning competition, and will its international growth aspirations really pay off? These are must-know issues for investors, which is why we've released a brand-new premium report on Netflix. Inside, you'll learn about the key opportunities and risks facing the company, as well as reasons to buy or sell the stock. We're also offering a full year of updates as key news hits, so make sure to click here and claim a copy today.

 


Read/Post Comments (6) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 14, 2013, at 10:42 PM, 5forfighting wrote:

    I appreciate your positive spin, but the more likely scenario will be fewer people with a job. I wish everyone would consider that the minimum wage is not intended to be a living wage but rather a learning wage. Raising the minimum wage so high so quickly will do more to damage the already fragile employment rate of beginning workers in our market place. How are kids supposed gain the experience and feel the satisfaction of working and earning if no one is willing to hire them in first place?

    Our businesses will adapt to the higher wage but I can assure you it will be with fewer employees.

    Just one small business owner perspective,

  • Report this Comment On February 15, 2013, at 4:08 AM, Nomadder wrote:

    "minimum wage is not intended to be a living wage but rather a learning wage"

    That might be the idea, but it's often quite far from the reality that there are millions of Americans trying to live off of minimum wage jobs.

    Wal-mart might be the most obvious example of a business paying less than living wage to those attempting to, in fact, live off of that wage. (forget about all the externalized costs passed onto the government because of this)

    There are many others that do this, however, while working minimum wage jobs at any number of gas stations, restaurants, stores, and various other businesses.

    I would think this well-known, but apparently not. Anybody who doesn't come from money (or the middle class) should be more than able to vouch for this.

  • Report this Comment On February 15, 2013, at 5:35 PM, 5forfighting wrote:

    My point remains that the laws of economics apply, not unlike the laws of physics , "for every action there is a reaction". Raise the minimum wage too quickly or too high and the reaction will not be pretty.

  • Report this Comment On February 15, 2013, at 8:27 PM, Nomadder wrote:

    That, under the current system, is something I don't disagree with.

    Personally, I think if we need a system where minimum wage changes regularly, is not based on politics, and is grounded in what it always should have been; the steady rise in the cost of living index.

    Set min wage to float up slightly every six months or so, according to US cost of living, and people will soon stop worrying about it.

    No longer will we be looking at downing a whole bottle of foul tasting medicine every few years.

    Instead, we'll just take it in smaller, more effective, less disruptive doses...that no longer hinge on political motivation/inertia.

  • Report this Comment On February 18, 2013, at 3:42 PM, DividendsBoom wrote:

    how about we augment raising the minimum wage with a step that lowers the cost of employment? Like tort reform. The cost of employment to the employer is much higher than just the wage base, and this is especially true at the lower end of the spectrum. Instead of constantly finding ways to make it more expensive to have an employee, lets not for once.

  • Report this Comment On February 18, 2013, at 4:20 PM, mdk0611 wrote:

    1. A floating minimum wage would lead to permanent uncertainty about costs and an increased reluctance to hire. That would be like hitting yourself over the head with a 2X4 because it feels so good when you stop.

    2. If you want to help heads of households (as opposed to 16 year olds) earning minimum wage the better way to do so would be to sweeten the EITC (earned income tax credit). But that shows up as a government subsidy which would "increase the deficit". Therefore it will be avoded for political reasons. Hidden is the reality that the increase in minimum wage will also increase the deficit (more wages to workers who don't pay income tax that are deducted by corporations and businesses that do). But you can't explain that in a 30 second sound bite.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2257684, ~/Articles/ArticleHandler.aspx, 9/17/2014 5:47:37 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement