Earnings season is well underway, and a clearly emerging trend is that stay-at-home stocks are reporting decreasing engagement from customers as economies reopen worldwide.
Three such examples are Amazon (AMZN -0.77%), Pinterest (PINS -0.16%), and Roku (ROKU -0.76%). Each reported sequential declines from the previous quarter and guided investors to expect continued challenges. Unsurprisingly, each of their stocks got hammered following earnings announcements. Let's take a closer look.
Amazon reported second-quarter results on July 29. The company increased net sales by 27% from the year before, which was a deceleration from the year-over-year increase in the prior quarter. Amazon further disappointed investors when it guided them to expect revenue growth from 10% to 16% in the next quarter.
Amazon benefited tremendously at the onset of the pandemic as millions of consumers looked to the e-commerce retailer to fill their needs as they stayed home. Amazon is now going through the reversal of this trend. Still, the company accelerated revenue growth in its more profitable Amazon Web Services segment.
That wasn't enough to assuage investors, and the stock fell 7.5% following the report.
Pinterest experienced a surge in usage and revenue as people cooped up at home took to the social media site's platform to find inspiration. From Q2 2020 to Q1 2021, the company increased monthly active users (MAUs) by 62 million. That trend reversed in its most recent quarter, and the company shed 24 million MAUs.
With economies reopening worldwide, folks spent more time outdoors and less time engaging with Pinterest's app. Here is what management had to say about reopening trends:
Since mid-March ... we believe engagement on Pinterest was disproportionately lower as people began spending more time socializing with friends outside their homes, eating in restaurants, and generally participating in activities that are not our core use cases.
Demand for in-home entertainment exploded during the pandemic. Understandably, if you're staying home for most of the day, you're looking for more ways to entertain yourself. From its second quarter of 2020 to its first quarter of 2021, time spent watching content on Roku increased from 14.6 billion hours to 18.3 billion hours.
However, as economies reopened in Roku's most recent quarter, viewership declined from 18.3 billion hours to 17.4 billion hours. Since most of Roku's revenue and profit comes from its platform segment that relies on viewership, the decline is troubling. Management commented on the matter:
Consumers sought increased out-of-home entertainment activities (such as dining and travel) in Q2 as a result of pent-up demand and the loosening of COVID-19 restrictions, which led to a broader secular decline in overall TV viewing hours.
The stock was down 4% on the day following the August 4 report.
Focus on the long term
It was unrealistic to expect the surge that sent millions of folks to these companies due to economic lockdowns to last forever. That does not mean Amazon, Pinterest, and Roku will not gain lasting benefits from the pandemic. Each acquired millions of new customers during the crisis. Admittedly, some of those customers may return to old habits as economies reopen, but some will stick around for the long run.
Additionally, the pandemic accelerated the world's shift to digital. In the long run, more shopping will be done online, and more content will be streamed digitally. The near term will consist of fluctuations of these trends, but their overall trajectory is unlikely to change. Investors should keep that in mind as they evaluate quarterly reports.