The article suggests that the stock market hasn’t priced this in yet. I don’t think that’s true.
Facebook and Google are both down more than 20% from their recent highs (along with the rest of the market, of course).
No one thinks that a recession is any kind of existential threat for either of them - they both have plenty of cash and fat profit margins.
And if anything, both companies are positioned to emerge from the pandemic in a stronger position than they started - with fewer competitors, more users, less expensive competition for talent (* whimpers *), and acceleration of long-term societal trends that benefit them.
Investors are not going to take their eye off the medium-term future of these companies because of an expected few poor quarters for very well-understood and temporary reasons.
To be clear
Alphabet ( class A ) -0.25% compared to previous year
Alphabet ( class C ) +0.57% compared to previous year
Facebook -1.31% compared to previous year
I think it's stil overpriced.
We are at the beginning not at the end.
your margins go away if you don't have revenue (no ads) and increased variable costs (more users hitting your servers) with constant fixed costs (rent, salary, healthcare).
Very crudely, a 20% drop in revenue for Alphabet would almost wipe out its profits.
Alphabet's revenue is a mix of hardware, online store, web services, and ad sales. With a global slowdown -20% is probably in the ballpark, although it may take a year for the effects to accumulate and ripple through.
Roughly half of GOOGL's opex is R&D, so I would expect some cuts in that over the next year or two. Maybe also in the more exposed parts of sales and marketing.
If you have sufficient reserves to last it out, then a year or two with no margins or negative margins should not mean a huge decrease in company valuation. If you lose 20% of your next 10 year profit because you lose 2 of 10 years, then that that justifies a 20% drop in share price but not a 50% collapse.
if you believe that, then I'll trade you 20% of my expected 10 year income for 20% of my current discounted net worth (which is theoretically what a company's market cap should be, a discounted claim on future distributions).
revenue today (or in the shorter term) is always more valuable than revenue 10 years out. put it a different way, what if there's another "act of god" in a few years? the probability of an extreme event occurring within a discrete timeframe increases as your timeframe gets larger, thus your certainty in revenue projections should decrease as you project further out.
Sure, but having good margins in the first place gives you more room - you might call it, "margin" - before any of that results in you actually losing any money.
Margin is only helpful if you have revenue, this will hit Google and other ad based companies hard (though google probably has the cash to weather it), Amazon will be fine and may even benefit.
I think that stock market right now is HEAVILY manipulated and current stock prices aren't even near accurate. And when i say manipulated, I don't mean something evil and secretive, I am referring to current FED and zero interest rate policy. That doesn't mean that what you are saying issn't true, I also believe that Google and Facebook will emerge from this crisis in good shape. BUT they are likely to lose a shitload of advertisers and businesses are shutting down and fighting for survival.
It's not manipulated, simply the anticipated inflation due to zero interest rates and QE has already happened. It has been confined to the top of the financial pyramid only in the form of the asset bubble however.
Eventually the inflation will leak to the Main Street, and that event will correct the asset prices by pricing them against the inflated goods in inflated dollars.
Facebook and Google are both down more than 20% from their recent highs (along with the rest of the market, of course).
No one thinks that a recession is any kind of existential threat for either of them - they both have plenty of cash and fat profit margins.
And if anything, both companies are positioned to emerge from the pandemic in a stronger position than they started - with fewer competitors, more users, less expensive competition for talent (* whimpers *), and acceleration of long-term societal trends that benefit them.
Investors are not going to take their eye off the medium-term future of these companies because of an expected few poor quarters for very well-understood and temporary reasons.