• Home
  • About
  • Services
  • Contact
  • Media

COVID Impact On Company Fundamentals

Posted September 11, 2020 by Denis Smirnov

We are just wrapping up the earnings season for the second quarter where companies report their quarterly results.  I found it unsettling to see some of the revenue drops numbers and thought I’d share a few tables.

Just to define what I mean by fundamental numbers, Exhibit 1 has four examples. Delta Air Lines had revenue of $11.5 billion in the second quarter of 2019. It then dropped to only $786 in Q2 2020. That’s a 93% decline! However, its expenses declined by just 36% to $6.5 billion. They still had to pay employees, rent on office building and airport gates, as well as the regular expenses on flying planes despite them being largely empty in the spring. This resulted in the net loss of $5.7 billion for the quarter. Same goes for the other 3 companies – huge revenue drops but slower expense declines leading to big losses. These large companies have the wherewithal to survive one, two, maybe three horrible quarters like this but beyond that even they would face viability questions.

Exhibit 1 – Q2 2020 Revenue and Income Examples

Moving on to a broader sample, there were 38 companies in the S&P 500 with Q2 revenue decline of 50% or more! Their revenue growth (or rather declines) are shown in Exhibit 2 along with the stock returns from February 19 when COVID selloff started to September 9. It makes sense that concerts, cruise operators, hotels/casinos, airlines and travel sites are heavily represented. There was very little activity in those areas in April, May and June. Energy sector is also featured prominently. It had a double-whammy of “normal” COVID-related impact on energy demand and the added drag of the oil price war started by Saudi Arabia and Russia back in March of this year. There are couple of apparel manufacturers there too as consumers stopped buying clothes while staying at home. Auto companies also saw a big drop in Q2 sales as factories shut down and showrooms were largely empty.

I didn’t want to make the chart too busy, but there were further 34 companies with revenue declines between 30% and 50%. This list featured household names like Disney, Starbucks, Nike, and McDonalds along with a variety of industrial firms.

Exhibit 2 – S&P 500 Companies With Year-Over-Year Revenue Declines of at Least 50%

Of course, there were also winners in the COVID world. I subjectively picked some well-known companies that are doing well in Exhibit 3. There are the much-talked-about FANG/FAAMG names highlighted in green. There is a reason they are doing so well this year (and in the prior few years) – they all had a positive revenue growth with the exception of Alphabet (Google). Also on the list are a variety of home improvement and general retailers as well as consumer staple companies. Second part of the list shows select companies benefiting from stay at home & work from home dynamics. Zoom, Peloton and Etsy are all growing by triple digits and have the stratospheric price appreciation to show for it.

Just in case you were wondering, I also looked at Tesla which is up huge this year, but they actually had a 5% revenue decline in Q2 and didn’t make this list.

Exhibit 3 – Select Companies Posting Year-Over-Year Revenue Growth

Key takeaways

This is just one quarter and many of the companies in Exhibit 2 will survive and flourish in the future. Although a few (energy, cruises?!) will likely never regain their luster. Conversely, the uber-popular Zooms of the world are unlikely to live up to the hype and lofty expectations as things normalize and competitors move in. What COVID has really done is accelerated trends that were already playing out – move to online shopping, energy sector decline, demise of traditional retailers, etc. The largest bankruptcies of the year are heavily concentrated in the areas that were troubled even before the virus – link 1 and link 2.

Share this:

  • Facebook
  • LinkedIn
  • Twitter
  • Pocket
  • Email

Sign up to the newsletter

Categories

  • Bear Markets
  • Bonds
  • Economy
  • Education
  • Financial Planning
  • Indexing
  • Investing
  • IPO
  • Retirement
  • Taxes
  • Uncategorized
  • Valuation

Archives

  • January 2023
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • May 2022
  • April 2022
  • February 2022
  • January 2022
  • October 2021
  • September 2021
  • July 2021
  • February 2021
  • January 2021
  • November 2020
  • October 2020
  • September 2020
  • July 2020
  • June 2020
  • May 2020
  • March 2020
  • February 2020
  • January 2020
  • November 2019
  • October 2019
  • September 2019
  • July 2019
  • May 2019
  • February 2019
  • January 2019
  • December 2018
  • October 2018
  • September 2018
  • July 2018
  • June 2018
  • May 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • October 2013
About
  • Background
  • Who We Are
  • The Gordian Knot
Services
  • Services
  • Planning Process
  • Investment Philosophy
Contact
  • Contact Details
  • Inquiry Form
  • Map
Media
  • Articles
  • Blog
  • Reviews
Dave
Denis
 
 
 
 

Gordian Advisors Financial Planner

Office: 2200 E. River Rd., Suite 109, Tucson, AZ 85718

Phone: 520-615-2779

Email: info@gordianadvisors.com

Download Form Form CRS Client Relationship Summary

Download Form ADV Disclosure Brochure

Gordian Advisors may only transact business or render personalized investment advice in those states where we are registered, or have filed notice, or are otherwise excluded or exempted from registration requirements. Material discussed is meant for general illustration and/or informational purposes only, and is not to be construed as investment advice. Nothing on this web-site should be interpreted to state or imply that past results are an indication of future performance. Although this information has been gathered from sources believed to be reliable, please note that individual situations may vary. Therefore, any information should be relied upon only when coordinated with individual professional advice.