Online Firms See Silver Lining In COVID-19 Cloud

The carnage on Wall Street, the crash in oil prices, the march of the coronavirus around the globe leads to a question about commerce, about payments and about the consumer underpinning it all: Who survives?

The sensible answer is that not much is likely to change, long term. The headwinds and confusion buffeting stocks — and by extension, views about the companies behind the ticker symbols — speak to not knowing the parameters of where we are, much less where we’re headed.

Monday morning (March 9), circuit breakers were triggered for equities, for the first time in more than a decade. Panic may well beget more panic, at least as far as trading is concerned.

But digging into the numbers shows there could be puts and takes (not so) hidden against a troubled landscape.

There might even be some “winners” — not that anyone “wins,” purely, in times of global health crises.

But there are some business models that will see a boost, or at least confirmation, as the battle against the coronavirus rages on.

Most immediately suffering are the tourism companies, and on a larger scale, the countries that rely on tourism to fill businesses (and by extension, through taxation, government) coffers. By way of ripple effect, that hits payment firms — at least for a bit, but not as much as some might think (more on that later).

By way of example, the South China Morning Post reported over the weekend that in Japan, All Nippon Airways has seen domestic flight bookings slip by 40 percent. February’s tourist count, on a daily basis, stood at 35,000 foreign nationals in February, where once that daily tally was 85,000. Japan’s COVID-19 “count” of roughly 500 infected individuals is not even near, say Italy, where the number is more than 7,300. In Japan, Chinese tourists account for more than 35 percent of tourism spending. In Italy, the Eternal City is now frozen, on lockdown. There no doubt will be hits to GDP for pretty much every nation where trade, where travel and where consumer spending, cross border, is important.

Consider the fact that the United Nations World Tourism Organization had forecast growth of 3.4 percent over the 1.5 billion tourist arrivals seen in 2019. That was before the coronavirus outbreak. China’s a powerhouse here, as tourists hailing from that country took 150 billion trips abroad and spent $277 billion in 2018, up from $15 billion in 2002.

The World Bank has estimated that, for Japan, tourism and travel (across all visits) contributed the equivalent of about $109 billion. Recent estimates, for the fourth quarter, show an annualized contraction of more than 7 percent for the fourth quarter, Nikkei Asian Review reported. That seems long ago and far away, marking a period that ended in December, well before the virus came.

Slowing Growth – But Not a Decline

That’s just one example, and as travel advisories take root around the globe, as cross-border visits, and cross-border spending, take a hit, the network giants that have seen such growth (in the past) translate into revenue boosts now see a drag.

Not a decline, it should be noted, but slowing growth. And perhaps, in world gripped by panic, eyeing the companies that survive (and maybe thrive), not just on Wall Street but beyond, in real life, boils down to growth.

And that means, of course, the firms that have online presence to buffer against the vagaries of an age that — however short lived — shuns human contact.

So, in a word, the relative winners, those that are insulated at least a bit from wild swings in markets and spending shocks, are firms that are contactless, or require minimal contact.

Beyond tourism, here’s an industry that has been hit hard, and might not recover for a while: conferences, where the meet and greet and face time (the real kind, not the streaming kind) mean so much. The Financial Times reported that the $1 trillion events industry may see more than a challenge ahead. Exhibit A might be Relx, which owns Reed Exhibitions, and where the events business generated about 16 percent of the roughly 8 billion GBP in top line last year.

As an unnamed real estate executive said to the FT: “Why do 27,000 real estate professionals need to go to the south of France for a week in the age of Skype and videoconferencing?”

It’s an existential question that may be asked repeatedly in the months moving forward.  The ripple effects will hit the local firms that seek to sell to the towns and cities (and hotels) that swell in population whenever the big events go on.

As for the winners, or at least the relative winners …

Visa said on its most recent earnings call that it saw second-quarter revenue growth in the double digit range, and in a filing with the Securities and Exchange Commission said that that growth should be 2.5 to 3.5 percentage points less. That’s still a healthy implied clip of high single digits to perhaps low double digit percentage points. Similarly, Mastercard has seen impact from the virus and has said that first quarter revenue growth will be roughly two percentage points less than had been forecast, so the revised estimate translates into about a 10 percent gain.

Part of the reason that growth is so firmly entrenched is because the way we pay has changed, of course. It’s important to note that Visa explicitly pointed out that cross-border eCommerce hasn’t been impacted yet — except for travel spending and in some Asian markets. That speaks to a fundamental shift in channels that extend far beyond tourism, across business spending, across everyday life and certainly domestically. The recent moves by the Louvre and by China to restrict handling cash may give incremental momentum to digital spending. A full-blown recession over a prolonged period of time may throttle growth rates drastically, but declines would take some doing.

On Monday, Guggenheim Securities slashed its sales outlooks across the board for the U.S. restaurant industry citing the rising risk of the coronavirus keeping U.S. diners at home. The investment bank sees fast food and quick casual brands experiencing 0.9 percent and 0.2 percent “domestic [sales] slowdowns” in the first quarter, as relayed by Yahoo Finance. Full-service restaurant sales are expected to get hit by 1.3 percent in the quarter. The analysts expect demand to pick up in the spring.

That’s a wild card, but we note that the embrace of food delivery may help at least some of these firms counter the impact of slowing or even declining foot traffic — translating into minimal human contact if people opt not to cook or are self-quarantined. (Beyond that is the question of how much an Uber Eats might offset a headwind, in, say Uber’s core business, which of course relies on person-to-person interaction.)

Should the shift be wholly toward cooking for oneself and family, or amid stockpiling of supplies, Walmart and P&G are among those less affected by consumer slowdowns that might impact other verticals — and indeed, the fact that Walmart’s common stock was up a few percentage points on a day that saw markets plunge by more than 5 percent says a lot.

Similarly, a shift toward a remote workforce — regardless of company vertical — would boost the fortunes of eCommerce giants like Amazon, which, notably grew through the recession a decade ago.

These are no easy times, but the thought that the world is ending, at least for business, gives short shrift to the way the world — and especially commerce — has changed.