For Immediate Release
Chicago, IL – April 8, 2020 – Zacks Equity Research Shares of Fiverr (FVRR - Free Report) as the Bull of the Day, Nordstrom (JWN - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Electronic Arts Inc. (EA - Free Report) , Tencent Holdings Ltd. (TCEHY - Free Report) and Activision Blizzard, Inc. (ATVI - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
The digital world is transforming into a gig economy, where ease & convenience are the underlying values. Fiverr is a revolutionary company that is driving this shift in employment demand. The pandemic is changing society and our economy abruptly. We are shifting rapidly to a more digitally-driven economy, and Fiverr’s offering perfectly embodies this movement. Analysts remain bullish on FVRR amid these uncertain times and have pushed this stock to a Zacks Rank #1 (Strong Buy).
People work gig jobs for many reasons, whether it’s their primary source of income, a “side hustle,” or just for fun. The next generation of workers is driving the digital freelance economy because it gives them control of their work and responsibilities. In a world where everyone wants to be a unique individual and make a name for themselves, a gig economy thrives.
Fiverr is set up like an e-commerce platform only instead of selling products it is selling services. The services range from website design to business consulting. Each “gig worker” has a starting price and a star rating, which include written reviews, allowing users to sort the studs from the duds.
This new generation of workers love flexibility (aka ease & convenience) and the ability to get paid & recognized for their results. Fiverr offers people unlimited flexibility, where individuals decide their hours and can work from wherever they want. It also gives workers the ability to gain experience with each unique project providing them with new or honed skills.
Fiverr is great from a business perspective as well, providing them with financial flexibility. This gig economy allows small businesses to cut overhead by reducing the full-time staff and hiring gig workers whenever there is a need. Fiverr is set up to ensure that these needs are met promptly.
Fiverr continues to add service sections, with over 100 new categories in 2019 alone. This vast catalog of service helps to ensure that workers’ skills are effectively matched with buyers’ needs.
Fiverr has been successful in acquiring new buyers as well as maintaining loyal users.
The global pandemic has put the entire economy online. The US’s largest cities and metropolitan areas are locked down, making remote working a necessity. Full-time workers are getting laid off by the millions, and what better place to post your lucrative services than Fiverr’s best-in-class freelance site. I expect that supply on Fiverr would increase as unemployment grows.
With companies chopping overhead, they are now in need of services that they can no longer get internally, so they will use experts on Fiverr for their immediate project requirements. I suspect that demand will be temporarily hampered as businesses across the globe suspend extra spending during this uncertain period.
As the economy opens up and business is revived in the coming months, I presume that a lot of companies will look to Fiverr’s gig workers for project needs as opposed to hiring on an expensive full-time employee.
I see the pandemic accelerating the global trend towards a gig economy, and Fiverr is leading the charge.
FVRR has been able to consistently grow its topline quarter-over-quarter, exhibiting 42% sales appreciation in 2019 and is expected to grow by another 30% in 2020. Despite its lack of profitability, the firm’s margins are progressively improving with scale.
Fiverr is well-capitalized to weather this pandemic with $184 million in cash & equivalents, which more than doubles its total liabilities. The company is almost entirely unleveraged, with close to no debt on the books, making its default risk low.
FVRR went public last summer and has taken investors for a wild ride since. The stock tumbled after its debut into the fall, where it recovered on robust earnings and exciting guidance. The stock hit a peak after it released its strong Q4 earnings at the end of February, then fell as the market turned south.
FVRR has been discounted with the rest of the market over the last month and a half. Right now, this stock is trading 17% below its most pessimistic price target ($28 per share) and 63% below the more optimistic analyst target ($39 per share). FVRR is a strong long-term investment for your next-generation portfolio today, as long as you can weather the short-term volatility.
Bear of the Day:
This pandemic may mark the end of department stores as we know it. Department retailers have been on the decline for the past year or so, with the new generation of shoppers having little patience for these enormous and cumbersome stores. Consumers have turned their backs on antiquated department stores and moved towards online shopping, which illustrates the values of the evolving consumer: ease & convenience.
Nordstrom is one such department store chain that is experiencing the retail apocalypse firsthand. This aging enterprise experienced a (2.2%) sales decline and an over (14%) drop in profits during 2019, while the broader retail market had its strongest year ever. E-commerce is driving the retail sector growth today, and as of Q4 2019, it makes up 11.4% of total retail sales, which is substantially higher than the 4.1% a decade ago. Below is a graph created by the St. Louis Fed’s economic research (FRED) illustrating the rise of online shopping.
Nordstrom has been vigorously attempting to pivot its platform to cater to the digital shopper, but it may be too little too late.
The biggest issue with department stores like Nordstrom is the massive amount of overhead associated with operating such gigantic stores. The business must not only pay for the annual leases, which can be considerable in high-traffic areas, but they have to pay the salaries of the sizable number of people that work at each location. On top of that, these stores are forced to discount their prices to increase foot-traffic. Over 1/3 of Nordstrom’s total 2019 revenues were items sold at a discount, up from the prior year. All of this has been weighing heavily on department store margins.
This is compared to the e-commerce space, which can automate a lot of its warehouse work and achieving expanding margins with scale. Retailers like Macy’s, JC Penney and Nordstrom rue the days they didn’t see Amazon as a threat.
JWN is highly leveraged with debt-to-capital of 82% and 2019 debt-to-earnings ratio of 5.4x. The department store is working with paper-thin net margins of only 3.2% and cannot afford for those to fall below 0.
Nordstrom is a non-essential business, and its stores have been forced to shut down across the nation.
This pandemic may be the straw that broke the camel’s back. JWN only has $853 million in cash & equivalents on the balance sheet and over $2 billion in debts and obligations due within the year (shown below from JWN’s 2019 10K).
The company has been somewhat successful in its transition to a digital platform, with 33% of its total sales being achieved digitally. Unfortunately, the highly leveraged balance sheet and significant overhead might be Nordstrom’s undoing. JWN suspended its dividend, and Fitch Ratings just dropped its credit rating to BBB, toeing junk bond territory.
This pandemic is pushing retailers to the edge of their balance sheets and marks an inflection point in the retail apocalypse. Only the strong will survive the global demand halt. Department stores like Macy’s and JC Penny are on the verge of bankruptcy, and Nordstrom’s balance sheet is deteriorating. JWN is now relying on its digital sales to keep its operations afloat.
I do not recommend shorting JWN shares or betting against them with puts, but I would stay away. The uncertainty for department stores is high, and I wouldn’t risk any of my portfolio with these shares. JWN has lost over 55% of its value so far this year, and there may still be more downside risk as the economic shutdown extends.
3 Gaming and eSports Stocks for Coronavirus-Led Lockdown
The universe of gaming and esports has long garnered attention owing to the segment’s ability to provide an impressive mode of entertainment. In fact, this world of indoor gaming has been stealing the limelight further in the last few months because of the rampant coronavirus pandemic that confined millions across the globe to their homes.
Let us thus take a look at this arena from an investment perspective.
Coronavirus Pandemic Buoys Video Game Space
It is interesting to note that the popularity of the video game space has increased significantly in the past few months. The COVID-19 outbreak, first reported in January from its hotspot — Wuhan region of China — has confined people around the world to their homes. This shutdown prompted consumers to seek different modes of entertainment, of which gaming is a key constituent.
This could be one of the reasons why top companies in the space banked in profits when the broader markets incurred losses, especially in the past month. While the broader S&P 500 Index shed its value, shares of leading companies reaped profits.
eSports a Growing Trend
The popularity of video games, by the way, did improve for a pretty long time, mostly pushed by change in gaming technology, altering preferences for entertainment among consumers, rising accessibility to internet, high-end smartphones and gaming devices, etc.
This popularity has led to rapid advancement in the gaming and esports space. Top companies such as Electronic Arts Inc., Tencent Holdings Ltd. and Activision Blizzard, Inc. have garnered fame and revenue rapidly because of their unique intellectual properties (diverse genre and story-lines, distinct graphics and ease of interaction) in the video game industry.
For example, Electronic Arts’ FIFA, Madden, Battlefront, Star Wars andApex Legends, Activision Blizzard’s Overwatch, Call of Duty, Starcraft, World of Warcraft and Hearthstone, Take-Two Interactive Software’s Grand Theft Auto, NBA 2K, Red Dead Redemption and WWE 2K are some of the high-revenue generating video game and esports franchises in today’s gaming realm.
eSports Market Ups Its Game
The sports industry has discovered remarkable growth with video games as the segment has attracted vast revenue streams over the past few years.
In fact, the overall esports market is anticipated to grow from $694.2 million in 2017 to $2,174.8 million by 2023, witnessing a CAGR of 18.6% in the 2018-2023 period, per MarketsandMarkets.
3 Stocks to Consider
We have, therefore, chosen three stocks from the gaming and esports space that carry a Zacks Rank #2 (Buy) or #3 (Hold).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Shares of Electronic Arts have moved 5.5% north in the past one month, clearly surpassing the S&P 500 index’s decline of 9.3% in the same timeframe. The company’s expected earnings growth rate for the next quarter is more than 100%. Electronic Arts, which belongs to the Zacks Toys - Games - Hobbies industry, carries a Zacks Rank #2.
Shares of Tencent have moved 4.5% north in the past one month. The company’s expected earnings growth rate for the current year is 18%. Tencent, which belongs to the Zacks Internet - Services industry, carries a Zacks Rank #3.
Shares of Activision Blizzard have have moved 7.4% north in the past one month. The company’s expected earnings growth rate for the current year is 10.7%. Activision Blizzard, which belongs to the Zacks Toys - Games - Hobbies industry, carries a Zacks Rank #3.
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