Market Overview

Coronavirus Is Not Necessarily Bad News For Everyone

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Coronavirus Is Not Necessarily Bad News For Everyone

The news surrounding the coronavirus has been a dominant theme in the earnings releases and conference calls of S&P 500 companies as investors press for answers on how it will impact the company's financials.

While many were asked to quantify the negative impact on their businesses, 34% said it was too early to say and did not include the virus in their financial guidance. When looking at the horizon from Jan. 1 through Feb. 13 found 38% included the term "coronavirus" at least once. Among the companies surveyed, those that were discussing the topic were mostly industrial, IT and health-care sectors.

Bad News

The snack maker Mondelēz Inc. (NASDAQ: MDLZ) told investors to expect "an impact on both revenue and margins" considering that the Chinese market represents a high-margin segment. It is also reporting additional transportation costs which are a consequence of shortage of trucks..  Still, the CFO Luca Zaramella is quite comfortable saying that there is nothing that taints really the full year at this point in time, pending maybe a bigger impact of the coronavirus, which is not seen at this point.

Yum China Holdings Inc. (NYSE: YUMC) which operates fast-food brands including KFC and Pizza Hut, has closed 30% of its restaurants. For the strong ones who persevered, same-store sales have declined as much as 50% since the Lunar New Year which made the whole outbreak worse. The outbreak has certainly caused a significant interruption as poor Pizza Hut has even struggled more than KFC, which has a stronger delivery business as luckily for them, more and more Chinese customers are opting for eating at home.

Not So Bad News

Domino's Pizza Inc. (NYSE: DPZ) said that fewer than 20 of its stores are closed in China and the outbreak is slowing down the openings of new stores in that market as last year, 80 net new stores were opened in China.  The Coca-Cola Company (NYSE: KO) confirmed its intention to achieve its full-year guidance. This does not mean that Q1 results will not be affected by COVID-19.

The impact is estimated to approximate 2-3 points to unit case volume, 1-2 points impact to organic revenues, as well as 1-2 cents impact to earnings per share. This only applies to Q1. Previous outbreaks like SARS happened in a time when the Chinese market was different.

Having in mind that it grew since then and that it now makes 10% of Coca-Cola's volume, the stated impact effects are logical. Some examples are delays which the company faced and in the production export of ingredients which the company uses in nonnutritive sweeteners.

Good News – Not Really, But Opportunities In Disguise

Several tech companies in China have managed to seize this opportunity so far, looking for what trends will surface from this pandemia. Well, staying in is great for playing video games The fact that some video game publishers including the likes of NetEase (NASDAQ: NTES), Tencent Games, and Kingsoft (OTC: KSFTF)  extended the promotions on their games until February 10 goes to show that the significant impact the outbreak has had on their bottom lines and their desire to retain these users. Given that schools and universities across the country will remain closed until the end of the month, we can expect this momentum only to continue.

Alibaba Group Holding Limited (NYSE: BABA) is also closely monitoring the situation and looking for opportunities both to support the community while finding new ways to offer its services. According to Alibaba, Nintendo's Ring Fit Adventure game for the Switch console, which combines exercise and role playing, has been a star performer, with sales more than quadrupling in the two weeks to Feb. 20 compared to normal levels. And surely, sales of games and yoga-mats will continue to rise as people need to stay healthy and find ways to entertain themselves at home!

Working And Studying From Home

10 million corporations had their employees begin working from home by using DingTalk. Earlier this week, DingTalk revealed  that more than 50 million students and 600,000 teachers used the live-streaming feature for their classes.

Remote office apps such as by Slack Technologies Inc (NYSE: WORK) and Microsoft Corporation's (NASDAQ: MSFT) Teams have been highly successful in the west but China not so much since telecommuting or remote work – but this will most likely change if the pandemia continues.

As this health risk prolongs further, the need to innovate can only  become stronger and even a prerequisite for survival and perhaps even an opportunity to thrive as smart companies will surely find a way to benefit – both for themselves while adding value to the society.

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Image by fotografiekb from Pixabay

 

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