“Screen time” now is no longer just an occasional mode of entertainment. It is a lifestyle. That’s from our macro specialist, Eric Fry, editor of the Speculator. In 2018, Americans spent an average of 6.3 hours per day interacting with digital media. The 2020 numbers aren’t out yet, but given pandemic-related remote-work, you can expect that average time has exploded. The reality is that whether it’s for work or fun, most of us are online just about all the time now — or at least it feels that way. This is driving the “Screen Time Megatrend” — a trend Eric believes could be the most powerful since the Industrial Revolution. It ties in hand-in-hand with another market dynamic which Digest readers are quite familiar with — the Technochasm. So, in today’s Digest, let’s turn to Eric for more on the Screen Time Megatrend, and a few specific ways an investor might play it. Eric believes the companies he highlights below “are very likely to become ‘thrivers’ once we get through the current crisis.” I’ll let him take it from here. Have a good weekend, Jeff Remsburg

 

Salesforce’s Slack Acquisition Proves This Tech Megatrend Is Here to Stay

By Eric Fry

Back in March, my company InvestorPlace shuttered its offices and sent employees home to work on their laptops.

Eight months or so later, the grand majority of our staffers are still at home.

In order to work from home, InvestorPlace uses virtual tools like Zoom, of course.

We also use “productivity” tools like Salesforce to manage and track sales … and Slack to talk to each other and manage our projects.

We aren’t alone.

According to Gallup, in April during the height of COVID-19 restrictions, 51% of American workers said they were “always” working remotely.

While the percentage of “always” remote workers has since dropped to around 30%, that’s still a historically high number of folks working from home. Prior to COVID, only 3.6% of us telecommuted half-time or more.

And post-pandemic, about two-thirds of remote workers tell Gallup they’d like to continue to telecommute.

Once you see numbers like those, the reasoning behind the Salesforce.com Inc. (CRM) $27.7 billion acquisition of Slack Technologies Inc. (WORK) becomes clear.

“Screen time” now is no longer just an occasional mode of entertainment. It is a lifestyle.

We leap from one screened device to the next, like a frog jumping across lily pads. Being without a device is simply not an option.

Americans spend an average of 6.3 hours per day interacting with digital media, which is more than double the hours they spent on screens 10 years ago.

 

 

A growing number of adults report being online “almost constantly.” And as anyone who lives in a home with teenagers can attest, “almost constantly” seems to be the norm of the under-20 crowd … especially now that a second round of COVID-19 is once again shutting down schools, travel, and most other “offline” activities.

The “Screen Time Megatrend” might be the most powerful one since the Industrial Revolution.

My beat is investing, so it’s not my role to judge the relative merits or detractions of a screen-based lifestyle. But from a moneymaking perspective, the Screen Time Megatrend possesses extraordinary power.

Both to catapult certain stocks toward the heavens … and to condemn certain stocks to the dustbin of history.

To get a taste of what’s to come, let’s talk about one big piece of the Screen-Time Megatrend puzzle.

And about some of my favorite trades in that space.

 

Score Big With These Three

Video gamers invented the “shelter in place” lifestyle, long before COVID hit.

So, it should come as no surprise that video-gaming has become the new national pastime for millions of homebound Americans.

That’s why the share prices of Activision Blizzard Inc. (ATVI), Electronic Arts Inc. (EA), and Take-Two Interactive Software Inc. (TTWO) were recently trading close to all-time highs. These leaders of the video-gaming industry are enjoying boomtime conditions.

These stocks can continue to fly high, even after the COVID-19 pandemic winds down.

Activision is particularly compelling.

For starters, the company’s total number of monthly active users (MAUs) has soared to 428 million — 30% higher than one year ago.

By itself, this trend could power strong earnings growth. But at the same time, the company is rolling out brand-new versions or enhancements of its uber-popular “Call of Duty” and “World of Warcraft” franchises.

In October, Activision reported adjusted earnings per share (EPS) of $0.81, 52.8% higher than the $0.53 from the same period of the year prior and 19% better than Wall Street’s estimate of $0.68. The company’s revenue of $1.93 billion is up 37.9% from $1.4 billion in the second quarter of 2019, and it also beat analysts’ estimate of $1.7 billion.

Bobby Kotick, CEO of Activision Blizzard, said this about the earnings results:

Our record engagement resulted in greater revenue and earnings per share than previously forecast. While economic uncertainty could have an impact on our near-term results, the initiatives that drove our growth for the first half of the year should also provide the foundation for long-term growth.

Activision also said it’s expecting adjusted EPS of $2.87 on revenue of $7.275 billion for all of 2020. That exceeded Wall Street’s estimate for adjusted EPS of $2.79 on revenue of $7.22 billion.

One final item worth mentioning is that the company has a bullet-proof balance sheet — holding more than $3.8 billion of net cash (total cash minus total debt).

While it didn’t move much on that earnings beat, Activision is up about 19% since I first showed it to you here on April 25.

Electronic Arts and Take-Two also reported strong third-quarter earnings. EA is the industry leader in sports simulation games like “Madden NFL” and “FIFA,” while Take-Two’s big-game franchises include “Grand Theft Auto,” “Red Dead Redemption,” and “NBA 2K.”

Any of the three would be a good “Buy” — but really, their strong earnings support buying the entire industry.

Here’s how you can do that …

A Growing $150 Billion Market

The video gaming sector was booming, even before the COVID-19 pandemic boosted worldwide gaming activity.

According to Newzoo’s “Global Games Market Report,” 2.5 billion gamers across the globe spent about $150 billion on games in 2019.

 

But shelter-in-place orders from China and Japan to Europe and the United States produced a surge in numerous online activities, especially video gaming.

Not surprisingly, every major video game company has reported rising demand throughout the crisis … along with rising earnings.

But the coronavirus pandemic did not merely create a short-term boost to video game engagement.

It expanded the total gaming market for the long term …

The ranks of gamers worldwide increased by tens of millions during the last few months. Now that the worst of the crisis has passed, most of these new converts will reduce their gaming time … but they won’t eliminate it.

That’s why you should take a look at the VanEck Vectors Video Gaming and eSports ETF (ESPO), a fund that invests in companies involved in video game development and eSports. It also invests in companies that produce the software and hardware that make video gaming and eSports possible.

Nine of the top 10 holdings in this video-gaming ETF — including Activision, EA, and Take-Two — are sitting on a net cash position. Together, they hold $36 billion in cash.

To be clear, balance-sheet strength, by itself, is not a reason to buy a stock. Nor is balance-sheet weakness automatically a reason to sell a stock. But cash is helpful in a crisis, both for survival and for capitalizing on opportunity.

While other companies may survive the coronavirus mess, right now survival is their focus … not growth.

By contrast, the cash-rich companies in ESPO can remain focused on growth. It is unlikely that we will wake up one morning to discover that Activision and its $3.7 billion of net cash are asking for a government bailout. Ditto, the other major holdings in this ETF.

These companies will be survivors, which means they are very likely to become “thrivers” once we get through the current crisis.

They’re on the right side of the Technochasm.

For more companies on the right side of the Technochasm, check out the special video presentation that I just put together with investing legend Louis Navellier. In it, Louis and I move beyond educating folks about the Technochasm — and showing them how to capitalize on it.

Plus, I share the stock and ticker symbol that I think could be my next 1,000% winner.

Regards,

Eric Fry