Telecommunication and Tech Stocks During Corona, An Analysis By Nextiva On Who is Surging and Why
Friday, April 10, 2020 4:17 AM
SCOTTSDALE, AZ / ACCESSWIRE / April 10, 2020 / The world is closed for about one in four people across the globe, with coronavirus measures taking effect at monumental scales following India's announcement of a nationwide lockdown on March 24.
Confined to their homes, people are turning to remote communication to keep up with work, education, and social contacts. Whether it's to discuss the latest sales reports on a video call, to complete the online quizzes that currently substitute exams, or to live-streaming yoga classes - demand for internet and business phone services is skyrocketing in the U.S. and across the globe.
Currently, almost a quarter of the world population is now living under some form of coronavirus lockdown. This leads to massive demand for remote communication.
In the U.S., peak network traffic has risen by 32% overall, and by 60% in some areas.
Markets remain volatile at the beginning of the new quarter, with the S&P 500 falling 3.7% as trading began on April 1, and the Nasdaq Composite declining 3.1%.
Nevertheless, some tech and communications companies - like Slack, Zoom, and Citrix - have surged in the midst of the crisis, benefiting from the boom in remote work.
Telecom stocks for companies like AT&T and Comcast have languished or plummeted, though Verizon was newly included in Goldman Sachs' Conviction List on Wednesday.
The real value for the majority of communication stocks surging right now lies in the long-term trend towards distributed teams in the aftermath of the corona pandemic.
In fact, Comcast - one of the largest internet infrastructure providers in the U.S. - reported that network traffic has risen by 32% across the U.S., and by 60% in some areas. Currently, network traffic is starting to plateau in the regions that were hit early by COVID-19, such as San Francisco.
With nationwide stay-at-home orders in place, considerable parts of the workforce have shifted to remote work and set up home offices. Consequently, tech companies facilitating remote work have seen a sharp rise in demand.
With a market that remains volatile - the Dow and S&P 500 just logged the worst start to a quarter in history - it is intriguing to examine which tech and telecommunication stocks have gained as a result of the current unprecedented circumstances - and which have stagnated or dropped. And above all: Why?
A story that has recently made the rounds in financial circles - to the amusement of traders - is of Zoom Technologies Inc., a Beijing-based maker of mobile phone components with a market value of just $18 million. The company's shares have doubled in the past few weeks, even though it has been out of business for a while. All that is due to a similarity in ticker denomination to California-based Zoom Video Communications, which has skyrocketed since the beginning of the corona crisis.
The (real) Zoom's stocks have gained as much as eye-popping 145% in Q1, as the company has established itself as the de facto standard for video conferencing. Though some analysts are predicting a bust after the boom, it is highly likely that the company will emerge from the current crisis considerably stronger than before.
The metrics behind Zoom's soaring stock price are impressive - and they formed a solid basis for success in advance of the crisis. In the year-ago period, adjusted earnings per share nearly quadrupled, and in fiscal Q4, the company's free cash flow tallied in at $26.6 million. Overall, cash, cash equivalents and marketable securities of the company valued at $855 million at the end of 2019, up from $176 million the year before. To cap it off, the company is debt-free.
Instant messaging platform Slack is also profiting from current circumstances. It has established itself as a major workplace communication tool with many add-ons and file-sharing options. Unlike Zoom, the groundwork for its current upturn was not as solid. In fact, following the conservative outlook presented in the company's fourth-quarter report early last month, its shares initially fell.
This has changed. Since March 16, Slack shares are up more than 65%.
CEO Stewart Butterfield took to Twitter to share the impressive surge in demand, with more than 12.5M simultaneously connected users, a colossal spike in team creation on the platform, and a Q1 increase in customers 80% over previous quarters.
Apart from the massive current demand, Slack can also boast a Q4 revenue jump of 49% and $769 million in cash, cash equivalents, and marketable securities - with zero debt.
Other companies providing services valuable to remote work are also seeing a boost in their stocks - like the cloud computing provider Citrix (up 35% since the beginning of March), or VPN providers like NordVPN, which has seen a 165% spike in the use of business VPN since March 11.
Telecom Companies Holding Stable or Plummeting
On the other side of the spectrum are America's large telecom stocks, which are either more or less steady or seeing marked drops.
At the beginning of March, before the virus swept over to the U.S. and the current measures were still unimaginable on American soil, Morningstar's Raymond James still called big U.S. telecoms companies like AT&T (T), and broadcasting and cable service provider Comcast (CMCSA) "a relative safe haven during the turbulence."
Today, AT&T's stock is down 23% from last month, and Comcast's is down 20%.
Part of the reason for that is the anxiety related to the current extreme stress test of America's internet. In an interview with CNN, FCC commissioner Jessica Rosenworcel voiced concerns about a variety of weak points in the infrastructure.
Whether it is ageing home WiFi routers or exchange points in the internet backbone, there are many bottlenecks. "There are a lot of different elements of bringing internet into the home, and a lot of places where we could find stress in the system," Rosenworcel said. For now, the companies are handling the hefty increase in traffic.
But part of the reason is also that many of the big telecom companies include services and ventures directly affected by the coronavirus shutdown. While companies have seen substantial demand for services such as VoIP - up 212% for Comcast since the beginning of the month - which provides additional features that facilitate remote work, other business channels have been hard-hit.
AT&T has been downgrade by Cowen & Co. analyst Colby Synesael to market perform from outperform. The reasons were expected pressures on fundamentals, especially within WarnerMedia, including HBO Max. The decision was made assuming strict social distancing measures in place until June and recession for the remainder of the year.
The company has also had to cancel its previously announced $4 billion accelerated share repurchase (ASR). This move was aimed at funding the acquisition of Time Warner.
Comcast is similarly struggling with disruptions in the media landscape, with significant limitations in its European Sky business, as well as theme-park closures and delayed film releases.
Among U.S. big telecom stocks, Verizon is holding steady, with comparatively small stock losses of just 5% over the past month. In fact, Goldman Sachs just added Verizon to their Conviction List. Their reasoning? "We believe Verizon's financial performance will not be materially impacted by a short-term economic shock. This is because a large majority of Verizon's revenues come from selling wireless connectivity services to consumers and businesses in the U.S."
The Bottom Line
Ultimately, losing or winning is predicated on the length and severity of the crisis, as well as the scale of the economic aftermath.
Even companies currently surging see an uncertain future ahead.
On Twitter, Slack's Steward Butterfield outlines the Janus-faced nature of the situation - on the one hand, large enterprises are clamping down on spending, and thousands of existing customers will go out of business in the face of a recession. On the other hand, the company is currently seeing an unprecedented surge of demand - and those customers need Slack more than ever.
"When I think about the future, I imagine a 'cone of possibilities'", Butterfield writes, "The further out you get, the harder it is to predict and the wider the cone gets. Increased risk, volatility, uncertainty push it wider still."
But one thing is certain: Things will not be the same as before.
For one thing, remote work is probably here to stay, which means a permanent increase in demand for services like Slack and Zoom. This is especially true since many companies have invested heavily in equipment to enable remote work.
It is not yet possible to foresee exactly what the future may hold for tech and telecom stocks - that, like so many other aspects of life, depends on the further development of the pandemic. But there are some definite pointers, and they show teleworking enablers on the upswing.
Media Contact Information:
Name: Jeremy Boudinet
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