Stock Market, Main Street, and Digital

Businesses with a digital focus who were already fully integrated with the future economy are gaining market share day by day. Those who didn’t are being left behind, but may not be dead yet. They either have one now and are implementing it ferociously or they will never open again.

Now, what if you are in a business that can’t go digital, travel for instance. Well, if you are big enough (too big to fail some might say) then you have access to capital through the government or capital markets. However, it’s the mom and pops of the world, or Main Street who don’t have that option.

Does the stock market make no sense to you right now? How can a negative 4.8% GDP number and 30 million new jobless claims over the last 6 weeks equate to a rising stock market?

Well, it’s primarily because Wall Street doesn’t equal Main Street. Yes, over a long period, the stock market will be in line with the overall economy. However, that period can be extremely long with zigs and zags along the way. The past two days, Google and Facebook have report earnings for Q1. They both reported great numbers and showed guidance that was much better than expected. Yes, the lockdown didn’t take effect until March so the next quarter may show a different story, but both companies suggested that April wasn’t all that bad either for their businesses.

How can that be?

Well, both are massive businesses with a focus on digital. These types of businesses should thrive in terms of eyeballs when people have more free time. How often do you find yourself with an hour free and instead of reading a book you scroll Instagram for an hour?

This seems obvious, but that’s not how these companies make money. They need advertising and advertising as a whole is way down. Well, sort of. Brand advertising is way down but direct response advertising is way up. Brand advertising is long term vs. direct response which pushes you to buy something now. If you are a business that wants someone to buy now, where are you going to spend your ad budget? Google, Facebook, or Amazon. So while Google and Facebook may be down in terms of total ad dollars, they are taking massive share of the remaining pie and leaving others in the wake. Amazon is doing the same in it’s business. Wal-Mart and Target doing the same. The smaller businesses are not and they are getting crushed right now.

 

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