By Therese Poletti, MarketWatch
When COVID-19 began spreading and forced everyone to stay at home, many discovered Zoom Video Communications Inc.
The Silicon Valley company had gone public less than a year earlier thanks to an easy-to-use teleconferencing product that was beloved by technology workers and others who needed the product, but it suddenly became the home for everything from school classrooms to church services to Alcoholics Anonymous meetings.
Seeing the need that the company was filling, investors more than doubled its valuation just in the first quarter of the year, and the company soon disclosed that users had multiplied by more than 20 in just a month.
In the short term, however, this sudden spike in usage will not mean a direct financial windfall for Zoom /zigman2/quotes/211319643/composite ZM +4.47% . While some of those millions of new users are paying for the service, the majority are not. Meanwhile, Zoom is likely paying for computing power from the cloud to support them and working to maintain a stable system, while frantically updating the software to paper over security and privacy issues that has state attorneys general and class action lawyers circling the company like hawks.
For more: Zoom Video lurches from boom to backlash amid privacy issues
Zoom illustrates the double-edged sword that nearly every tech company faces during the coronavirus pandemic: While tech is needed now more than ever, there is a downside scenario at nearly every tech company.
The quarterly earnings season — which kicks off for tech next week with companies like Netflix Inc. /zigman2/quotes/202353025/composite NFLX -0.97% , whose stock just rocketed to fresh record highs despite the scary pandemic — will be the first glimpse at that dichotomy, as the global economy starts to sputter.
“I have never seen anything like this,” said Dan Ives, managing director, equity research at Wedbush Securities. “No one has. We are going into some unprecedented territory, it’s like playing darts with a blindfold.”
MarketWatch has detailed what the large tech companies and some other prominent businesses face as the world attempts to beat back the COVID-19 pandemic . Each sector of tech has a different set of issues going on in its business that complicate its financial picture and current prospects during the pandemic, so here is an overview of what they face in the coming days and months.
Internet and social media
Ad-supported companies face a super-sized version of the Zoom issue: While their free platforms and services are being flooded with users, advertisers are cutting marketing budgets. That will show up later down the line. According to the consensus, earnings in this category, which includes Alphabet Inc.’s Google /zigman2/quotes/205453964/composite GOOG +0.12% /zigman2/quotes/202490156/composite GOOGL -0.23% , Facebook Inc. /zigman2/quotes/205064656/composite FB -4.01% and Twitter Inc. /zigman2/quotes/203180645/composite TWTR +0.59% will jump 35.3% in the first quarter, but will tumble nearly 12% in the second quarter, as costs rise and revenue slows. Those second-quarter estimates are subject to change after the companies detail their expectations this month.
Internet giants in the age of COVID-19: Click for more on Facebook and Google
“Our conversations with industry contacts suggest digital media spending remains under significant pressure into early April, and while Q2 likely marks a bottom, ad budgets are unlikely to recover meaningfully until closer to the seasonally important Q4,” Colin Sebastian, an analyst with Robert W. Baird, wrote in a recent note.
Facebook, for example, is seeing unprecedented traffic in services such as Facebook Messenger phone calls and WhatsApp, traffic levels that it has only seen in the past on holidays like New Year’s Eve. But its costs are going up to support all these services, some of which like WhatsApp are not generating much revenue, and advertisers are dropping like flies.
Many investors initially guessed that media companies will be among the biggest winners as everyone stays home and watches more movies and television shows. But the tale of two entertainment companies, Walt Disney Co. /zigman2/quotes/203410047/composite DIS -0.42% and Netflix Inc. /zigman2/quotes/202353025/composite NFLX -0.97% show that results will likely be uneven.
Factset estimates predict that in the entertainment sector, which also includes a few video game makers like Electronic Arts /zigman2/quotes/206954087/composite EA -0.13% , earnings will tumble 25.5% in the first quarter, and plunge 70% in the second quarter, brought down by Disney and Live Nation /zigman2/quotes/203077299/composite LYV +0.64% , the concert ticket sellers.
Streaming media in the age of COVID-19: Click here for more on Netflix and Disney
“The widespread temporary closures of movie theaters and theme parks, as well as sports events, live entertainment, and other venues of mass gathering ... should result in a significant loss of revenues for several constituents, many of which were still incurring fixed expense overheads,” Sam Stovall, Chief Investment Strategist at CFRA, wrote in a recent note.
Netflix, for the most part, is seen as one of the big winners, but the temporary inability to film and debut new shows and movies could have some impact on its viewership if the sheltering in place continues for many months down the road. It will likely be tougher for some of its new rivals to catch up, though, including Disney.