Indeed, the bursting of the technology/internet equity bubble is still remembered by advisors and clients more than two decades after the fact.
With the benefit of hindsight, advisors now that bloodletting of those proportions was necessary and ultimately beneficial because it laid to bare flaws at many next generation companies. In colloquial terms, the tech wreck separated the wheat from the chaff in a still nascent industry.
It also prompted to advisors to remind clients about the important factors pertaining to internet stocks. Those include competitive moats, quality traits, how and where companies are sourcing growth and the ability of those companies to be nimble.
Investors that adhered to those guidelines were handsomely rewarded over the long-term as internet stocks were among the primary drivers of what was a lengthy (more than a decade) run of out-performance by growth equities. While the global financial crisis was a set back, the reality is internet investing, namely e-commerce/online retail, went more mainstream following the crisis and it's reasonable to expect that today, some clients want exposure to that effect. It's on advisors to steer them in the right direction.
Appeal for Younger Clients
While Amazon (NASDAQ:AMZN) is a staple of American retail culture and investing – making it appropriate for a broad number of clients -- advisors need to be well-versed in strategies that are applicable for and desired by millennials and Gen Z.
In terms of relevancy to those demographics (and others) there's a new concept afoot in online retail and it's another example of disruptive technologies intersecting: Social commerce. This is an easy concept for advisors to convey to clients. As its name implies, social commerce is the marriage of e-commerce and online retail. It's not far-fetched, either. It's as mundane as buying an item directly off a platform like Facebook or Twitter. The allure for clients is social commerce is growing and ripe with compelling long-term potential.
“In our view, e-commerce has substantial room for growth thanks to digitally native consumers who view it as the norm instead of a convenient substitute for brick-and-mortar shopping,” according to ARK Investment Management. “Now that both e-commerce and social media occupy an increasing share of consumer waking hours, platforms are experimenting with blends of the two: social commerce, or transactions with social features on social media.”
When one thinks about it, social commerce is highly practical for both companies and consumers. Consumers are already using social media to evaluate and review products and services. Meanwhile, social commerce represents another, potentially vital revenue source for smaller and mid-sized social platforms, many of which struggle to diversify revenue streams.
“As a consequence, many social media platforms are likely to adopt e-commerce solutions at the same time that traditional e-commerce sites embrace social features,” adds ARK. “Based on ARK’s research, as more platforms transition from pureplay to social, the ecommerce market could scale 50% at a compound annual rate, from approximately $390 billion last year to nearly $3 trillion by year-end 2025.”
Still in Early Innings
A few years ago, the term “social commerce” was hardly uttered outside of Silicon Valley and some small investment circles. That's good news because it can be inferred that social commerce is still in its early innings, which it certainly is.
That's a positive for multiple reasons, not the least of which is clients' insatiable desire for finding the “next big thing.” In a landscape riddle with dubious next big thing ideas, social commerce is credible and perhaps durable – clearly good news for clients.
“Thanks to in-app shopping, we believe social media platforms are likely to transition from lead generators at the top of the funnel to full stack commerce providers. The goal of every online platform in the world, funnel compression could also mark the next strong leg of growth in social commerce,” concludes ARK.