We examine the significant impact that COVID-19 has had on the stock market in general and three companies in particular
On February 27, 2020, the Dow Jones Industrial Average (INDEXDJX: .DJI) closed with a 1,190.95 point drop (3,581.39 points since February 20), the highest decrease in history. The NASDAQ Composite (INDEXNASDAQ: .IXIC) and S&P 500 (NYSEARCA: VOO) also experienced their biggest point losses in history with point drops of 414.30 and 137.63, respectively. The reason was growing concerns about the coronavirus (officially COVID-19) outbreak and its effect on business supply-chains around the world. Here is how three high-profile corporations have been affected.
Apple (NASDAQ: AAPL) took a 28% hit in iPhone sales in China in January of this year. The company’s original Q2 revenue was forecast to be in the $63-$67 billion range, but Apple says that it is now expecting it to be lower due to the outbreak.
The reason for the decline is twofold: lower supply and demand. After initially shutting down, factories have started to re-open but production is yet to resume normal operating levels. On the demand side, sales have seen a decline in China as well due to store closures and lower customer traffic at re-opened stores. China is a huge market for Apple, representing about $43.7 billion in revenue in 2019. The company’s share price has dropped $50.10 since February 20, closing at $273.36 on February 28.
At the beginning of February, the Chinese government shut down businesses and factories, including Tesla’s (NASDAQ: TSLA) in Shanghai in an effort to slow the spread of the virus. The factory was closed for a week and a half, slowing the production of the company’s Model 3 vehicles. All of Tesla’s 24 stores were closed as well. Tesla Giga Shanghai, China’s first foreign-owned car factory, is important to the company as it was launched to gain a foothold in the country’s electric-vehicle market, the largest in the world.
In January, registrations of new Tesla cars dropped 46%. The first two weeks of February saw a 92% decline in auto sales in China. Elon Musk, Tesla’s CEO made a guidance promise of 500,000 vehicle deliveries in 2020, driven by projections for China. With sales taking a nosedive, those numbers may need to be adjusted. Tesla’s stock closed at $667.99 on February 28, down $231 since February 20.
Outside of the United States, China is Starbucks’ (NASDAQ: SBUX) biggest market, with 4300 outlets, and represents 10% of the company’s revenue. In late January, Starbucks temporarily shuttered half of its cafés in China. Although 85% were re-opened as of February 28, customer traffic remains low. The dip comes at a time when it is facing stiff competition from Chinese rival Luckin Coffee (NYSE: LK)
Although exceeding analysts’ expectations in its last quarterly earnings, Starbucks issued a warning for fiscal 2020 results due to the virus. The company’s stock closed at $78.43 on February 28, down $11.71 since February 20.
History has proven time and again that the stock market always rebounds after crashes. These are resilient, strong global brands that will almost certainly bounce back from this temporary panic and can currently be purchased at a discount.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Apple, Tesla, and Starbucks Read our full disclosure policy here.