Insights from the MS TMT Conference

Last week I heard from a range of companies at the annual Morgan Stanley Technology, Media and Telecommunications conference in San Francisco. There were a number of themes and trends that were raised by the companies in attendance, such as transitioning workloads to the cloud, or assisting firms with their digital transformations. However, one theme received more attention across the board than any other: the impact of the coronavirus on firms. How should investors think about the risks from the coronavirus for their portfolios?

The answer is it depends, and it was clear that the impacts of Covid-19 on companies was varied, from virtually no impact, to a dramatic fall in revenues and guidance cuts. The impacts on companies can basically be broken down into: (i) demand impacts; and (ii) supply impacts.

Consider a business such as Take-Two Interactive (Nasdaq: TTWO), the maker of video games such as Grand Theft Auto and Red Dead Redemption. While CEO Strauss Zelnick refused to do a victory lap and pointed out the broader societal implications from Covid-19, it’s likely that as people stay indoors to minimize the risk of contracting the virus, player engagement and virtual spending in TTWO’s games will increase. In other words, the demand side for TTWO is likely to actually increase as a result of Covid-19.

However, the impact on the supply side is not as clear cut. TTWO has a team of developers that are working on producing content and future games. There are developers at the company who will be working from home, perhaps for a prolonged period. Strauss Zelnick admitted that he’s “not a big believer in remote work”, and that workers are “going to have to find a way to be just as productive at home”, underscoring a question mark over the extent to which the creative development process could be disrupted from these changes to the working environment (i.e., shifting from a collaborative development setting to trying to achieve the same outcomes remotely).

Many other companies will also need to grapple with potential disruptions to workflows caused by remote work. As an aside, Zoom Technologies (Nasdaq: ZM), a company that sells video conferencing software products and also presented at the conference, is actually a major beneficiary from this theme of working remotely, and since the start of the year its share price has almost doubled! Either way, TTWO represents a company that is relatively unscathed from the coronavirus. On the other hand, a company such as Sabre (Nasdaq: SABR) that presented at the conference has been having a much tougher time.

SABR provides technology solutions to the global travel and tourism industry through its global distribution system (GDS). In a world where consumers and businesses are both minimizing travel, SABR has taken a direct hit to the demand side of its business, with airline bookings (i.e., people purchasing tickets) falling almost 40% in Asia Pacific, and softening across other regions such as LatAm, EMEA and North America. There’s precedent for this sort of impact to a business like SABR, with GDS bookings globally falling 9% in 2003 due to the SARS epidemic. Since late February, the SABR share price has more than halved, highlighting just how savage the sell-off has been for stocks whose fundamentals are impacted by the virus.

There were other companies at the conference that experienced impacts from Covid-19, such as supply chain disruptions, or varying degrees of demand impact. However, one thing is clear: for strong businesses that are only temporarily being impacted by the coronavirus, the large downward share price moves are creating potential buying opportunities for the patient investor who is able to weather the short-term volatility.


George Hadjia is a Research Analyst with Montaka Global Investments. To learn more about Montaka, please call +612 7202 0100.

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