Major tech companies are seeing demand skyrocket during the pandemic, positioning an already powerful industry to withstand the devastating effects of the coronavirus on the U.S. economy.
Sales are surging for many of the biggest names in tech as most Americans are under stay-at-home orders, making them more reliant on Silicon Valley’s services.
“Overall, the tech industry is extremely well positioned to be resilient and successful during this period,” said Eric Schiffer, CEO of the private investment firm Patriarch Equity. “One of the reasons is this global catastrophe that is translating into such economic pain is in many ways an inflection point for the further digitization of the world.”
“You’re seeing that reflected in the variance between the Nasdaq and the S&P — investors recognize it,” he added.
The Nasdaq composite, which consists primarily of tech firms, has significantly outperformed broader indexes like the S&P 500 and Dow Jones Industrial Average during the downturn. Next week, Wall Street will get its first glimpse at the growing strength of individual tech companies during coronavirus era, as Amazon, Apple, Facebook and Google report their quarterly earnings.
Amazon is benefiting from increased demand as consumers rely more on its services to avoid risk of exposure to COVID-19 at brick-and-mortar stores. Those shifting consumer habits may very well continue after the virus is contained, analysts say.
Amazon’s stock rose 5.43 percent in the first three months of the year, which was one of the worst quarters on record for U.S. financial markets.
During that time, the online retail giant brought on 100,000 workers to keep pace with rising orders, and it plans to hire an additional 75,000. The company’s cloud service, Amazon Web Services, doesn’t appear to have been hurt by the crisis either, as companies build out their online networks.
Still, the pandemic has highlighted workplace issues for Amazon, prompting some employees to walk off the job to protest a lack of protective gear and inconsistent sick leave policies.
But that’s unlikely to put a dent in Amazon’s gains, Schiffer said.
“People are not going to stop buying from Amazon because of a headline,” he said, ”largely because they have such a strong position in the market.”
Netflix has also done well during the pandemic.
The streaming service had 16 million new subscribers in the first quarter, a record for the company.
Streaming has also helped Disney. The company’s online revenue is offsetting losses from closed amusement parks, delays in movie releases and production and broadcasting ESPN without any live sports. The company recently announced that Disney Plus, its new streaming service, has amassed 50 million subscribers after just five months.
Tech companies reliant on ad revenue, however, have a harder road to navigate.
“Alphabet [Google’s parent company] is highly dependent on advertising revenues and the same can be said about Facebook,” said Ali Mogharabi, a senior equity analyst at investment research firm Morningstar.
“During this downturn you’re looking at ad spending being slashed by many different businesses, not only in the U.S. but pretty much all around the world … the revenue growth rates are going to be bad for them,” he said.
Alphabet is more diversified, Mogharabi noted, pointing to its cloud business and subscription-based YouTube TV, meaning it will be impacted less by the drop in ad revenue.
Facebook also has reason for optimism. Users have been spending more time online as a way to safely connect with family and friends. The social media giant has reported huge spikes in usage on all its platforms — Facebook, Messenger, Instagram and WhatsApp — in the states hardest hit by the coronavirus.
“That increase in audience size actually will attract the advertisers once the economy turns around,” Mogharabi said.
Another reason why investors have confidence in Google and Facebook, despite their reliance on ad revenue, is their ability to make new acquisitions.
Facebook this week announced a $5.7 billion investment in Jio Platforms, taking a nearly 10 percent stake in India’s largest mobile telecom provider.
Apple also appears to be in good shape, despite having to close stores around the world.
Foxconn, which assembles most of Apple’s iPhones, announced last month it was able to reopen factories in China quicker than anticipated. And Apple recently launched a new TV service that’s poised to draw in more viewers as people remain homebound.
But at a time when more than 25 million Americans have filed for unemployment benefits in the past few weeks, Silicon Valley isn’t immune to possible cutbacks either.
Google is weighing a hiring freeze, CNBC reported Thursday.
Also, not all tech firms are likely to emerge in a stronger position after the economy reopens. Uber and Lyft have been hit hard as few Americans leave their homes.
While Uber’s ride losses might be offset by its food delivery service, Lyft is going to “basically feel the total impact of lower demand for ride sharing,” Mogharabi said.
Both companies have sought to diversify their services amid the pandemic, such as delivering medical supplies.
The resilience of big tech companies during the coronavirus pandemic comes on the heels of growing backlash to Silicon Valley dubbed the “techlash.”
While many lawmakers and regulatory officials at the state and local level have vowed to pursue antitrust and oversight just as strongly after the pandemic is over, this period has given companies a chance to improve their public image.
Apple and Google, for example, are developing a contact-tracing system that may prove essential to curbing the spread of the coronavirus, while Amazon is hiring at a time when unemployment is surging.
Those steps might soften criticism going forward, Schiffer said.
“The whole concept of techlash is going to take a backseat to people’s personal pain and the fact that there’s a need for jobs and technology is going to be hiring,” he said.
–
This article first appeared in www.thehill.com
Seeking to build and grow your brand using the force of consumer insight, strategic foresight, creative disruption and technology prowess? Talk to us at +9714 3867728 or mail: info@groupisd.com or visit www.groupisd.com
