The coronavirus pandemic is going to cause earnings problems for almost every large company in the Internet business, RBC Capital analyst Mark Mahaney said in a research note late Friday.
RBC is now forecasting a recession. The firm’s base case now calls for a 1% decline in U.S. gross domestic product in the June quarter. Mahaney noted that since the World Health Organization declared a global health emergency on Jan. 30, the
has dropped 24% and large-cap Internet stocks have fallen an average of 22%. Individual declines have ranged from a 50% drop for
(LYFT), to just a 6% dip for
Almost every one of those companies is going to see some effects from the virus issue, “due to current and expected demand/supply disruptions in the wake of Covid-19,” Mahaney wrote. He expects profits to be hurt through midsummer, before a recovery to normal growth rates by the September quarter.
Mahaney cut revenue estimates for 14 stocks by between 2.6% and 21.4% for 2020, and by 4.8% to 15.6% for 2021. Here are some of his key points.
- Mahaney contends that the most vulnerable companies include
Alibaba Group Holding
(BABA), the giant China-based e-tailer, and online travel agency stocks Booking.com (BKNG),
(TRIP). “Online travel companies face dramatic demand downturns due to health concerns and legal restrictions and will then face pressures as big-ticket consumer discretionary items,” he said. As for Alibaba, he notes that “BABA bears the brunt of the COVID-19 crisis, given its entrenched operations in the epicenter of the virus’ initial outbreak.” He cut estimates for these companies by about 20%.
- The analyst expects a substantial hit to “second tier” online ad platforms
(SNAP). “Advertising companies that are dependent on brand advertising and aren’t named Google or Facebook will likely face pullbacks,” he wrote. Mahaney cut estimates by 7%-9% for these companies.
he brought estimates down about 5%. “Google’s brand advertising business will face pressure and its travel advertising segment (10-15% of total revenue) will endure significant pressure,” he wrote. “Facebook doesn’t have as much travel exposure, but it has more brand exposure.”
(AMZN), “with a retail segment that is increasingly consumer staples driven,” with continued strong cloud growth, should be “only modestly impacted,” with 3%-5% estimate cuts, depending on the time period, Mahaney writes.
- He sees only modest impact for both
(UBER) and Lyft, “as they are more transportation utilities than travel apps, with Uber in particular seeing stay-at-home benefits in its Eats segment.” He cut estimates for the two ride-sharing companies by 3%-5%.
- Least affected, Mahaney says, will be streaming media. “Based on Netflix’ consistent top-line track record during the global financial crisis, and their home-safe and high-value/low-cost value propositions, we believe
(SPOT) are likely to experience immaterial disruptions,” he wrote. “No change in estimates.”
- He also maintained his estimates for online pet food seller
(CHWY). “Chewy’s in-home delivery model mitigates the public health concern of consumers shopping at brick-and-mortar retailers,” he wrote. “We would also argue that pet food is a less discretionary category, which also adds some level of recession resilience to this business.”
As for stock ideas, Mahaney says the most oversold names in the group are Lyft (down 50% since Jan. 30) and Uber (down 38% over the same span), as well as Snap (down 45%) and Pinterest (down 40%), asserting that they have “lots of product innovation and monetization potential.”
For those investors focused on quality, he recommends
Facebook, and Alphabet, saying they are “all at or within 5% of trough multiples.”
Write to Eric J. Savitz at [email protected]
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