US Consumers Coming in Hot

By admin_45 in Blog

As the US economy reopens, we continue to consider what a post-pandemic world will look like and how strongly hard-hit industries can bounce back. Today we’ll focus on the travel and leisure industries to both gauge investment opportunities and US consumers’ propensity to spend. Here is a slew of Google Trends search volumes to assess demand:

#1: Search volumes for travel booking site “Expedia” and “Disney World” back to January 2019:

• Searches for “Expedia” and “Disney World” collapsed after the pandemic commenced last March and remained below 2019’s levels for the rest of the year.
• Queries started climbing the week of Christmas and New Years as people traveled for the holidays and have since broken out to post-pandemic highs.
• Since the start of the year, searches for “Expedia” and “Disney World” are up 68 pct and 23 pct respectively. They are still down 31 pct and 16 pct from the same week in 2019, but the recent breakout for both terms is notable.

Takeaway: queries for “Expedia” and “Disney World” started rising to post-pandemic highs in February and have kept moving higher this month in the case of the former term and held up for the latter. We view these searches as a leading indicator as people tend to look up information online before making a purchase. We expect interest to continue to rise as Spring Break nears, more people get vaccinated and the weather warms. Of course, the new round of stimulus checks will also help. Searches for Expedia typically exceed Disney World; given that leisure travel tends to come back quicker and stronger than business travel after a recession, we suspect weakness in the latter explains why they have yet to decouple.

The upshot: we think these searches reflect pent-up demand for leisure travel, and remain bullish on the airlines which also continue to see increasing pricing power throughout 2021.

#2: “Gym” vs. “Peloton” vs. “Movie theater” since January 2019:

• Searches for “gym” dove after they were shutdown last March, climbed back to 2019 levels as the pandemic improved last June, but trailed off thereafter and struggled for most of the rest of 2020. They picked up the week of Christmas and New Years and have remained at higher levels than much of 2020 since.
• Searches for “Peloton” peaked in December 2019 ahead of the holidays. The other spikes in interest coincide with phases of lockdowns (i.e. March and September) and of course this past Christmas week. Queries have trailed off since.
• Searches for “movie theater” fell dramatically after lockdowns last March and have not recovered since.

Takeaway (1): exercise facilities will certainly lose some customers who created home gyms or bought certain workout equipment (i.e. Peloton), but Google searches show Americans are interested in getting back to the gym. There’s still room for improvement, but they are already back to levels reached during 2019 and are close to a 12-month high.

As for Peloton, full disclosure that I have one myself and love it; it’s also impressive that current searches near where they were at this time last year after shutdowns even with the economy reopening. That said, we’re not convinced the company or other tech enabled home fitness platforms will upend gyms the way streaming did to movie theaters. Granted, Peloton is a niche product, but searches for gym still outnumbered the company by 2.5x over the last year. No doubt the company will continue to grow, but the pandemic offered especially unique circumstances for it to shine which makes for very tough comps.

Takeaway (2): Americans have grown accustomed to the convenience of streaming content from home. Closing theaters enabled media companies like Warner Bros the opportunity to start disrupting the film industry’s distribution model by simultaneously releasing its major movies not only in theaters but also on its streaming service HBO Max. Bottom line: movie theaters will need to prove their relevance as a medium of entertainment again after over a year of profound and potentially long-lasting behavioral changes.

#3: “Restaurant” and “bar” since January 2019:

• Searches for “restaurant” and “bar” plunged after lockdowns last March and never recovered to pre-pandemic levels last year.
• Queries for “restaurant” and “bar” are up 24 percent and 23 percent since the start of the year and current levels are actually better than during some points of 2019. Searches for “bar” are at a 12-month high, while those for “restaurant” peaked the week of Valentine’s Day but are still holding up.

Takeaway: US consumers are increasingly interested in eating and drinking out again, which we expect to continue with the new stimulus checks and warming weather heading into Spring. While the leisure and hospitality industries were disproportionately hurt throughout this pandemic, we expect huge pent-up demand for Americans wanting to enjoy experiences outside their homes in Q2 and Q3. I personally own the Invesco Dynamic Leisure and Entertainment ETF (PEJ), which just hit an all-time high on Monday and is up 33.8 percent year-to-date; we still think it has room to run.

Bottom line: our review of Google search volumes shows people are craving experiences that enable them to leave their homes for a night out or to travel. A confluence of factors from new stimulus checks and warmer weather to more vaccinations will increasingly enable this to happen, so we remain bullish on both travel and leisure companies that leverage these trends.