Big Tech was riding on the crest of the longest bull market ever seen. Now that times are much more challenging, how is the pandemic costing them?
Businesses in most industries are being affected by the coronavirus pandemic, some worse than others. Big Tech has been a favored avenue for investors over the past few years, but challenges could be looming large.
Is Big Tech in trouble?
Naturally, Big Tech companies will be experiencing some hardships during this pandemic. Some of them are feeling the burn more so than others. However, they are not fundamentally in trouble.
All of these companies have massive amounts of cash on hand to ride out almost any storm. Many of them have distinct competitive advantages and size that means they can dominate the markets that they are in and continue doing so.
The worst affected Big Tech company is likely to be Facebook (NASDAQ: FB). Most of its $70 billion revenue comes from advertisers, and with so many businesses shuttered, these payments are no longer possible for many. Even businesses that remain open tend to cut advertising in times of economic uncertainty. Some analysts estimate that Facebook and Google (NASDAQ: GOOGL) will lose out on a combined $44 billion in ad revenue in 2020 due to the pandemic.
However, advertising spend will pick up again, particularly online as businesses focus more on e-commerce. With a 19% share of the online advertising market, Facebook appears to be in a solid position.
How much is this costing the companies?
Big Tech has been helping out with relief efforts during this pandemic. Extensive donations have been made to those in need. Apple (NASDAQ: AAPL), for example, donated $15 million in cash and twenty million face masks. Facebook has made more than $135 million in contributions and Google’s parent company Alphabet has provided more than $800 million worth of donations.
The likes of Google, Apple and Facebook have also been using their big data capabilities and market access to help track the virus.
While Amazon (NASDAQ: AMZN) may see strains on supply due to manufacturing issues, it has seen record levels of consumer demand for the period since the pandemic began. Consumer spending is up about 35% for the marketplace, leading to the company hiring 75,000 new workers. Its share price has also hit new heights.
Apple has reopened most of its stores in China, but most Apple Stores across the rest of the world remain closed. Its retail presence accounts for about 31% of total revenue in 2019. Manufacturing strains will also see a decline in the number of shipped iPhones all of which will lead to poorer short-term results.
Will there be long term issues?
The future is still very uncertain as the pandemic rages onwards. While there have been some glimpses of hope in certain areas, there are also fears of a second coming of the virus. Therefore, nobody can accurately predict what will happen next.
Governments and central banks across the world are doing everything they can to keep businesses afloat and workers paid. With each week that goes on, the further finances will be strained.
While the Big Tech companies don’t have to worry about going out of business, they may be concerned about potential dropping consumer demand. If there is a prolonged recession, people will shore up their spending, foregoing on the latest tech devices like phones, computers and other gadgets. Advertising revenues will also be hit and this could lead to the likes of Facebook diversifying their revenue streams a bit more. From an investment point of view, Amazon certainly looks to be the most pandemic-proof company out there. The likes of Facebook and Apple will likely be in the doldrums for a period. Google and Microsoft (NASDAQ: MSFT) look well-positioned to weather out the storm and continue performing strongly.
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