When it comes to the tech sector, there is no place to hide from the crushing blow to financial results that is coming as fallout from the coronavirus-triggered market meltdown and potential recession.
On Wednesday, William Blair tech, media and communications analyst Ralph Schackart cut his estimates on every company on his coverage list to levels well below the current consensus for both 2020 and 2021. He covers an eclectic mix of internet, tech and consumer stocks,
His new revenue estimates are between 4% and 15% below the consensus view among Wall Street analysts for this year, and between 4% and 12% below expectations for 2021. His adjusted estimates of earnings before interest taxes, depreciation, and amortization, or Ebitda, are even more sharply below the general view. They range from 6% to 42% below consensus for this year, and between 5% and 18% below for 2021.
The estimate cuts affect 18 companies, including some large-cap names such as Alphabet (ticker: GOOGL), Facebook (FB) and Netflix (NFLX). Four companies have the most downside risk at this point, according to Schackart: Grubhub (GRUB), Revolve (RVLV), Uber Technologies (UBER) and Yelp (YELP).
Grubhub shares might be a surprising choice to some investors, given the stock has spiked recently. People have reasoned that the food- delivery company will benefit from increased demand, in particular in New York City, where it dominates the market.
“While consumers are likely ordering more food delivery, Grubhub recently noted its suspension of commission rates for independent restaurants,” Schackart wrote. “In an attempt to boost revenues for restaurants hardest-hit by the coronavirus, Grubhub announced on March 13, 2020, that it would suspend the collection of up to $100 million in commissions from local and independent restaurants. We are not sure how much potential there is for this to continue and/or any further risk potential for restaurants to shut down entirely for some duration.”
For Revolve, an online clothing retailer, he sees several new issues. For starters, the company is hurt by the cancellation of the Coachella music festival. “In conjunction with the California-based music festival Coachella, Revolve holds its Revolve Festival event, driving thousands of influencers and customers to its own section of the music festival,” he wrote. “Marketing spending also ramps up during this time, as influencers post with increased frequency throughout the weekend, showing a variety of new styles available on the website.”
Now, none of that is happening.
Schackart also noted that Revolve gets 75% to 80% of its own branded stock from China, with 40% of third-party items sourced from there. He added that on its Feb. 25 earnings call, Revolve said it expects a 1% to 3% negative top-line impact as a result of the coronavirus. “However, as the virus has continued to spread globally, we expect the top-line impact will be much more pronounced,” he wrote.
As for Uber, he said that “select U.S. cities are now witnessing 40% to 50% declines in ride share usage, a trend that is likely to continue should additional quarantine restrictions be enacted on a state or nationwide basis.” Meanwhile, Uber Eats is suspending the assessment of delivery fees to independent restaurants in the U.S. and Canada to help pass through additional revenue to outlets affected by statewide shutdowns.
Yelp, he said, will be hurt as small businesses pull back on advertising budgets. “As a result of the shutdown of not only bars and restaurants nationwide, but small entertainment venues, museums, and other local attractions, many small businesses may be struggling to generate enough income to pay necessary bills,” he wrote. “With these businesses struggling to generate revenue during this period of quarantine, many small businesses may be likely to pull back digital advertising spending on Yelp’s platform.”
On Wednesday, Grubhub stock was down 12%, Revolve was off 13%, Uber had fallen 14% and Yelp had dropped 8%.