You might be able to own this recessionary market by betting on rentals.
The Nasdaq Internet Index is down 51% over the past year, prompting investors to question just how close we might be to the bottom. With persistent inflation, expected rate increases and at the start of what could be a very weak earnings season, consider taking refuge in an age-old market that is exploding in new ways: rentals.
When it comes to major life decisions, uncertainty abounds: We don’t know how long the pandemic will linger, remote work can last or real-estate prices can stay elevated. Luckily, the rental market allows you to borrow what you can’t afford or aren’t ready to own. Today you can rent someone’s swimming pool, their home gym or even their pet.
Renting is often misunderstood by consumers because what is “affordable” isn’t always what is cheap: Car-lease payments are modest compared with the sticker price but, at the end of the term, you are out a lot of money and you still don’t own your own ride. It is a source of consumer cognitive dissonance that tech companies are looking to capitalize on as they work to show investors they can both appeal to cash-strapped consumers and still profit over the long-term.
As part of new Chief Executive Officer Barry McCarthy’s turnaround plan for Peloton, customers can now “lease” a Peloton bike with a subscription fee that includes both content and hardware. The idea is to make the product more accessible: An $85-a-month subscription is a lot more affordable than a bike that costs nearly $1,500, even before you pay for content. But, like a car, keep it going for enough months and you will have spent just as much without your own bike to show for it. Naturally, Peloton says it will gladly offer its subscribers a buyout option at any point.
Rentals for nonstationary modes of transportation are even more popular. Peer-to-peer car share, for instance, stands to benefit from rising interest rates and shortages that have made car ownership harder to afford for many people. Taking a cut from both the car owner and the renter, Turo generated positive adjusted earnings before interest, taxes, depreciation and amortization last year on revenue that tripled annually. The company counts SoftBank-backed Getaround as a key competitor. Both soon-to-be public companies had raised around $500 million in equity financing as of last year, highlighting the venture-capital interest in this industry.
Recreational vehicle retailers are also joining the rental bandwagon. Camping World Holdings has been somewhat quietly building a sort of Airbnb for RVs in Rvrentals.com. While its secondhand sales have already helped to buoy its stock, even as RV manufacturers have sold off, rentals could help to bring in new customers who aren’t necessarily ready to go all-in on ownership. Investors should expect a fast ramp-up: As the largest RV retailer in the U.S., Camping World can leverage its sizable first-party data trove to quickly take advantage of the current market environment.
For parents, it is difficult to commit to full-time help if you don’t even know where your full-time office policy might land. Meanwhile, you can avoid committing to an in-home care provider by opting for on-demand service via a subscription to an online care platform. Bright Horizons Family Solutions’ Sittercity, for example, touts its ability to find you a sitter in five minutes; but membership could cost you as much as $39 a month. Subscriptions to such services have lately been in high demand: IAC/InterActiveCorp, which closed on its purchase of Care.com in early 2020, says it has seen 30% subscriber growth on its care platform since the acquisition.
But nothing is booming more than home rentals. Whereas Zillow-surfing for home purchases became everyone’s favorite pandemic pastime, sky-high real-estate prices and soaring mortgage rates now have consumers hunting for rentals instead. Zillow said in its first-quarter shareholder letter it saw 38% unique user growth in rentals year over year, citing Comscore data from March, even as overall traffic to Zillow’s mobile apps and websites in the first quarter fell 5% year over year.
Nearly two decades old, real-estate brokerage firm Redfin picked this year to launch rentals on its site after purchasing RentPath last year in its largest acquisition. Redfin said it launched the business in March to “meet customers where they are,” since homeownership is now out of reach for many. The company says “we need rental listings to meet more customers.”
Some rental companies had been enduring a rough patch. Fashion company Rent the Runway, for example, resorted to resale amid the pandemic after subscriptions to its rental-based “closet in a cloud” concept cratered. But this year, things have been looking up: Rent the Runway’s first-quarter report showed revenue grew 100% year on year, while active subscribers climbed to record levels.
Tempted to buy the dip? Risk averse investors might want to rent it instead.
This story has been published from a wire agency feed without modifications to the text