Secular trend: you’ve probably heard this term a lot if you watch the market. But do you know what it means?
First, here’s the quick definition: it's a trend in a market or an industry that is relatively long-lasting. The trend's overall trajectory is little-changed by economic developments in the short-to-medium term.
Let’s talk secular industry trends.
There's streaming, for instance. Netflix (NFLX) - Get Report, one of the ultimate innovators in entertainment, is looking to satisfy a global market for streaming that is still in its relatively early stages of growth. For several years, and likely for several more years, internet users around the globe will subscribe to streaming services, providing excellent annual growth rates for streaming spend. In the U.S., the business is more mature, as many have already adopted stemming.
Now, other big players like Disney (DIS) - Get Report and Apple (AAPL) - Get Report are in on streaming, creating a competitive threat to Netflix. Streaming businesses like Netflix fetch high valuations to reflect the high potential revenue and earnings growth rates and these stocks are classified as growth stocks. The streaming business is largely unaffected by changes in the economy.
Another secular trend is payments. PayPal (PYPL) - Get Report is one of the biggest service providers in this business. As people and businesses worldwide adopt electronic payments as opposed to traditional transfers and hard cash, the growth curve in payments revenues has accelerated, although it may now be starting to settle. Sure, if the economy turns downward and there is less consumer spend, that may pressure volumes of electronic payments. But revenue growth rates for your PayPal’s or Square’s (SQ) - Get Report will just go from really high to kind of high for a short period, before resuming aggressive growth.
People often say secular growth trends can largely cut through cyclical headwinds. That’s a fancy way of saying secular trends will remain in place as economic turbulence takes hold.
To see some other companies and businesses doing well, especially in light of the pandemic, watch the quick video above.