The coronavirus pandemic has been a once-in-a-lifetime tragic event that changed the course of history. And on the business front, the effects of government policy aimed at slowing the spread of the virus created winners and losers. Those deemed essential, and allowed to stay open, thrived while others were forced to close their doors to in-person shopping. Similarly, digitally native businesses fared well as their operations did not require bringing people together in person.
Three huge winners during the pandemic have been Home Depot (HD), Roblox (RBLX), and Netflix (NFLX 0.77%). Thankfully, the world is progressing in its battle against COVID-19, and governments are removing business restrictions. At the same time, the return to a more normalized economy has meant decelerating growth for these pandemic winners.
Home Depot is the only one of the three stocks mentioned with a massive brick-and-mortar presence. At the pandemic's onset, the company was deemed an essential retailer and permitted to stay open for in-person shopping. Sales surged as a result. Between the quarters ended July 2020 and April 2021, Home Depot reported sales growth of over 20% for four consecutive quarters. To put that outperformance into context, consider that Home Depot has grown revenue at a compound annual rate of 7.9% in the past decade.
However, since economies started reopening and consumers gained options on what to do with their time and money, Home Depot's sales growth has decelerated. Further, management expects sales growth to come down even more. The company guided investors that in fiscal year 2022, sales will barely grow at all from 2021.
With billions of people spending more time at home, demand for in-home entertainment soared at the pandemic's onset. Subscriber growth surged at Netflix. The company added more than 10 million subscribers for two consecutive quarters, which it had not achieved once in any quarter in the previous three years.
Economic reopening is taking its toll on Netflix, too. Management forecasts the company will add 2.5 million subscribers in the first quarter, a figure far lower than is usual for Netflix in Q1. That should not come as a surprise. Demand for in-home entertainment could scarcely ever be as high as it was during the initial stages of the pandemic when folks were spending almost all of their time indoors.
Roblox is a metaverse platform geared toward young kids and teenagers. Of course, it thrived when kids worldwide were sent home from classrooms for remote instruction. Roblox went from 23.6 million daily active users in the first quarter of 2020 to 49.5 million by the fourth quarter of 2021. Parents felt more comfortable letting their kids play together virtually rather than in person.
However, now that schools are reopening and extracurricular activities are restarting, growth is slowing at Roblox. One sign that points to the slowdown is the average bookings per daily active user, which has turned negative for two consecutive quarters.
What this could mean for investors
The decelerating growth has not gone unnoticed by the market. Each of the three companies mentioned above has seen its stock prices fall significantly in 2022. Some of the drops are the result of the slowdowns already experienced. A meaningful part of the stock price crash can also be attributed to the risks of further decreases as the world continues progressing in the battle against COVID-19. The heightened volatility in the near term could present excellent opportunities for long-term investors to buy shares of these pandemic winners.