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.
Facebook Inc (NASDAQ:FB)
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 Inc (NASDAQ:FB)’s revenue climbed 40% in its latest quarter. A whopping 84% of that comes from advertising. If marketers see that Facebook Inc (NASDAQ:FB) 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.
Netflix, Inc. (NASDAQ:NFLX)
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.
Five Below Inc (NASDAQ:FIVE)
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.
Microsoft Corporation (NASDAQ:MSFT)
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.
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 Inc (NASDAQ:FB) in terms of who it reaches, but then we get to Android and Google’s hardware initiatives.