For a month,
’ stock tumbled as investors worried about the company’s survival in a socially distanced world. From Feb. 11 to March 18, the stock shed 64% of its value.
Uber (ticker: UBER), he noted, has $10 billion of uncommitted cash in the bank, an untouched $2 billion revolving credit line, and no long-term debt due before 2023. Even if Uber’s ride-hailing business drops 80% for the rest of the year, Khosrowshahi said the company would finish 2020 with at least $4 billion in cash on hand.
Khosrowshahi’s reassurance sent Uber shares soaring, up nearly 40% right after his call. Rival
(LYFT) jumped 29% on the news.
There’s a clear lesson for investors here: Cash is now king. And on that score, tech stocks are far better positioned than any other sector.
For investors looking to jump back into the market, this is a rare opportunity to buy tech’s Big Five—
(FB)—on the cheap. The virus issue affects them all, but each company is likely to come through the downturn with its business intact.
All five companies have sparkling balance sheets. Together, they have $587 billion in cash against just $200 billion in long-term debt. Apple has the biggest pile of total cash, with $207 billion at year end, against $108 billion in borrowings. Accounting for debt, Alphabet is even more flush. It has $128 billion in net cash.
Alphabet, Amazon, Apple, Facebook, and Microsoft have shed a collective $1.4 trillion in market value from their February peaks; the stocks were down an average of 25% through Wednesday. And therein lies the opportunity.
Steve Milunovich, a Wolfe Research strategist who has covered tech since the 1980s, says he’s still feeling confident about the big-cap tech names. He remains bullish about the growth of cloud computing—a technology that makes it possible for many people to work from home, and a market that’s dominated by Amazon, Microsoft, and Alphabet.
Meanwhile, Milunovich thinks governments may take a looser approach to tech regulation coming out of the downturn than has been the case in recent quarters, as the focus shifts toward restoring growth.
Here’s a closer look at the market’s five largest tech companies:
Amazon shares have held up well in the market’s tumble, and still sport a modest gain year to date. The company is seeing a surge in retail demand, as homebound consumers expand their use of e-commerce to include more daily staples. “Amazon is serving as an important source of food, cleaning supplies, and other essential household items, as physical stores are closing and people increasingly avoid public spaces,” J.P. Morgan analyst Doug Anmuth wrote in a research note last week.
The company plans to hire 100,000 additional workers for its fulfillment centers and delivery network. Anmuth thinks Amazon will come out of the crisis with a stronger share of both online commerce and overall retail. And Amazon Web Services continues to be the leading cloud-computing player.
Milunovich sees multiple reasons to like Microsoft shares. The software giant has warned about near-term weakness in demand for PC-related software, and enterprise-software demand could soften, as well. But the company’s Azure cloud business is still growing rapidly, there’s a new Xbox game console on the way, and the company is seeing huge growth for its own cloud-based service offerings.
Last week, Microsoft announced that it now has 44 million active daily users for Teams, the company’s workplace communications tool, a serious rival to
(WORK). Microsoft said it had signed up 12 million new users in the past week alone.
Apple was the first major tech company to warn about coronavirus, back on Feb. 17. At the time, Apple withdrew its March-quarter outlook, noting the outbreak was hurting demand and causing supply-chain issues.
But the supply chain in China is improving, with contract manufacturer Foxconn’s factories coming back on-line. Apple has reopened all 42 of its stores in China. Granted, the company has now closed the rest of its stores worldwide. The slightly good news is that the March and June quarters are slower times for Apple, and stores could reopen in time for the iPhone 5G launch expected this fall. Meanwhile, Apple has spent the past several years bolstering its services business. Music, streaming, and app purchases could get a boost with consumers stuck at home.
RBC Capital internet analyst Mark Mahaney notes that both Alphabet and Facebook stand out in a world worried about liquidity—the two ad-driven giants have more than $200 billion in cash and almost zero debt. Both companies will surely see an impact from the current crisis, but it’s hard to imagine either one of them reporting negative free cash flow, Mahaney says.
Some 10% to 15% of revenue at Alphabet’s Google comes from travel-related advertising. Those dollars are sure to dry up in the coming months. Facebook has less travel exposure, but could be more vulnerable to a pullback in brand-related advertising. But the crisis is driving a surge in user activity—Facebook said last week that calls on WhatsApp and Messenger have been double their typical levels.
Mahaney contends the downturn offers investors a chance to upgrade the quality of their portfolios. “If you always wanted to own Google or Facebook or Amazon, this is a wonderful opportunity here. It’s your chance to buy the highest quality assets, 25% cheaper,” he says. “When you do decide to buy equities again, you can start there.”
Write to Eric J. Savitz at [email protected]