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Not All Hot Sectors Have Staying Power

Not All Hot Sectors Have Staying Power
By Adam Sharp
Date May 15, 2020

In today’s world of quarantines and lockdowns, there’s a huge divide between winners and losers.

Brick-and-mortar retail, travel, and construction are all getting hammered.

But some sectors are still thriving. Today we’re going to take a look at a few of them — and discuss whether they’re worth investing in for the long-term.

Telemedicine Soars

Since the lockdowns began, telemedicine has become the standard way for doctors to meet with patients and prescribe medicine.

Teladoc (NYSE: TDOC), which enables telemedicine, has seen its shares rise from a 52-week low of $53 to $182 today.

The question is, will this trend last beyondCOVID-19? I believe it will. Telemedicine was already growing rapidly before the pandemic. Its usage jumped an amazing 53% between 2016 and 2017, according to the American Medicine Association.

A lot of people who used telemedicine for the first time during the crisis will simply use it as their default going forward. Sure, some people will go back to the traditional model, but many won’t.

I’m very interested in telemedicine going forward. This crisis has made millions of people realize they don’t need to go to the doctor’s office for their basic health needs. And the consequences of this crisis will have a significant impact on healthcare for decades to come.

Work-From-Home Tech

Most of you have probably heard about Zoom’s incredible growth since the lockdowns began. It is simply incredible that they’ve grown from around 10 million meeting participants per day before to 300 million today.

Once the lockdowns end, I expect we’re going to see a lot more people working from home regularly. Twitter has already announced that it will allow employees to continue remote work after the pandemic ends. Google and Facebook are telling its employees to work from home for the rest of the year.

Everyone who can work from home is now set up to do so. We’ve all been forced to adapt in record time. It’s been an incredibly fast transformation.

Yes, many people will go back to the office as soon as possible. But some won’t. And many will choose to work from home a few days a week, if they can. This is a strong trend that I expect to continue going forward.

So I’m actively looking for startup investments in the work-from-home tech space. There are plenty of promising ones available. Take a look at Firstbase — which I recently discovered. This startup helps companies get the equipment needed for their employees to work remotely. There’s a huge need for this service. And if they execute well, it’s a gigantic opportunity.

Food Delivery

I’ve never been a big fan of the food delivery business. It’s a low-margin business with high overhead costs and lots of competition.

But right now, food delivery has become a staple for many households. Shares of Domino’s Pizza (DPZ) have soared from a 52-week low of $220.90 to $379.03 today. Meal kit service Blue Apron (APRN) shares were trading at just $2.30 before this all began. Now they’ve risen back up to around $8.00.

I have no doubt that some amazing new food delivery startups will emerge during this crisis. I’m just not sure they’ll do so in the U.S. There’s too much competition and regulation here. And launching a company during a lockdown is no easy feat.

So food delivery is not an area I’m actively seeking out opportunities in. As I said, the margins are low (or negative). And if things go back to “normal” soon, I believe this sector will continue to struggle.

Long-Term Impact

When evaluating startup deals in newly “hot sectors” like the ones we discussed today, we must think past the lockdowns. Eventually they will end. And we have to determine which sectors grow when that happens.

I strongly believe telemedicine and work from home tech will continue to thrive post-pandemic. This crisis has simply accelerated strong trends that were already in place. And I believe the impact will be lasting.

I have my doubts about food delivery, though. It’s an extremely crowded field already. And I’m not convinced the growth we’ve seen recently will continue post-lockdowns.

And as always, don’t invest in a startup just because it’s in a hot sector. That’s only one part of the equation for successful investing. It needs to be a promising company. And ideally, it has solid traction.

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