5 Winners in a Minimum Wage Hike
Feb 14th 2013 9:40PM
Updated Feb 15th 2013 7:45AM
One of the bigger surprises in President Barack Obama's State of the Union address on Wednesday night was a call for raising the country's federal minimum wage requirement.
Obama argues that $7.25 an hour is too low for poor families and entry-level hires to make a living. He wants legislators to bump that rate up to $9 an hour.
The market's reaction yesterday was understandable. Many fast food chains and mall retailers that often shell out minimum wage rates to their front line of hires fell slightly. Their labor costs would naturally rise, and then it's a matter of either investors or consumers eating the difference.
However, let's take a more optimistic view of the matter. A higher minimum wage would translate into those employees having more disposable and discretionary income.
There will be some winners out there if this does go through, especially for companies that reach this target audience, but do so with a workforce that's already making more than minimum wage.
Let's go over a few companies that stand to benefit from a move like this.
The leading social networking website operator obviously isn't paying its developers and engineers the minimum wage, yet a lot of young people making $7.25 an hour make up a good chunk of the site's billion active users.
Facebook's revenue climbed 40% in its latest quarter. A whopping 84% of that comes from advertising. If marketers see that Facebook users have more money to spend -- and, in theory, they should if the minimum wage goes up -- they will be willing to spend more to reach them. From a user perspective, the balance of Facebook's revenue comes mostly from money that users spend on virtual goods purchased on the site's diversions. Naturally, that would be another winning category if young 'uns had more money to spare.
There are no advertisers at Netflix, but when you reach more than 33 million streaming customers with an attractively priced streaming subscription model, it clearly helps to have more people willing to spend $7.99 a month for unlimited access to a growing digital vault.
That $7.99 a month is going to seem even more compelling when its less than an hour's wage.
This will be the only traditional retailer on the list.
Five Below runs a fast-growing chain of stores where everything sells for $5 or less. Dollar stores are a dime a dozen, but Five Below has been able to convey a "cheap chic" message that has made the retailer popular with young shoppers.
Sales through the eleven-week period ending Jan. 12 soared 34%. Expansion is a major part of that, but comparable store sales were also up a healthy 4.2%.
Like most strip mall retailers, Five Below probably starts its employees at or just above the minimum wage line. However, Five Below will be one chain that will more than make that back in increased sales.
Let's talk Xbox.
There are now 76 million Xbox systems out there, and the average gamer spends 87 hours a month on the console. A major draw to Xbox over rival platforms is the Xbox Live Gold subscription, where users pay $60 a year for a growing gamut of online engagement. There are now 46 million Xbox Live subscribers.
As the minimum wage grows, expect more young Xbox owners to pay up for Xbox Live Gold plans.
The same circumstances that will milk more money out of advertisers at Facebook will also play into Big G's coffers.
Google can use it. The cost-per-click through Google has declined 6% over the past year. The shift to mobile usage is a major part of that, but it's something that will naturally be helped if advertisers feel that online users are worth more to reach.
Google tosses out a slightly wider net than Facebook in terms of who it reaches, but then we get to Android and Google's hardware initiatives.
Google is teaming up with partners to put out dirt cheap Chromebook laptops and Android tablets. There is also the growing popularity of Android, in general, as a mobile operating system. Since it's open source, manufacturers can put out cheaper smartphones fueled by Android than they would through other platforms.
Even $9 an hour isn't going to drum out too many incremental smartphone owners. Data plans are expensive. However, it will be a factor for high school and college kids working for spending money as dependents.
Increasing the minimum wage hike will be a politically divisive issue; but, for investors, it helps to start keying in on the beneficiaries.
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The article 5 Winners in a Minimum Wage Hike originally appeared on Fool.com.Longtime Fool contributor Rick Aristotle Munarriz owns shares of Netflix. The Motley Fool recommends Facebook, Google, and Netflix. The Motley Fool owns shares of Facebook, Google, Microsoft, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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