TMT companies keep North America connected during pandemic
However, they aren’t immune to challenges
INSIGHT ARTICLE |
The technology, media and telecom (TMT) sectors in the United States and Canada are playing a crucial role in keeping people connected as the coronavirus pandemic hobbles the global economy and dramatically changes daily life around the world. Businesses and public entities are especially relying more and more on services provided by tech and telecom companies as large numbers of workers shift to remote work, and students barred from classrooms use digital tools to keep up with their schoolwork.
Here’s a look at the impact of the pandemic on each sector, and what TMT businesses should keep in mind for the near future as the disruption continues.
Along with the health and safety of employees, many high-growth technology companies are focused right now on capital and understanding their liquidity. Venture capital deals closing right now have been in the works for some time, and “it will be interesting to see what things look like in May and June,” said Kurt Shenk, a senior TMT analyst at RSM.
“We anticipate a slowing of both deal activity and exits as a result of COVID-19,” Shenk explained. “That said, there is still a lot of dry powder looking to be deployed, and the best technology companies with diverse and strong customer relationships will still find ways to access capital, especially within verticals like health tech and education tech. We have seen some companies elect to delay IPOs or other liquidity events until a degree of stability returns to the markets.”
Apple and some other hardware or chipmaker companies that make devices such as smartphones are expected to see some pent-up consumer demand later in the year, after a difficult first and second quarter. Within other technology sectors, companies that develop collaboration software, such as Zoom and Slack, are experiencing significant demand right now as people adapt to new ways of working and communicating remotely with coworkers, friends and family. Microsoft’s Teams platform reported 44 million active users so far in March 2020, more than double the number of users the company reported in November 2019. Collaboration software is booming, but many other B2B and B2C software companies are being affected indirectly from COVID-19 and the uncertainty within their customer base.
Some software companies serving affected industries have even taken the price of service offerings down to zero for a short time. Eliminating certain software fees for some customers affected by the pandemic helps build goodwill. Additionally, this is a useful client retention tool if the particular industry is anticipating a V-shaped recovery once the pandemic subsides.
Online education is another growth spot for tech companies as students—from grade school through higher education—stay home in the face of school closures. The rise of educational technology platforms has been a trend for some time, “but it seems even more now,” said Shenk. This shift doesn’t just apply to students formally enrolled in a school; online educational platforms also provide great ways for people to grow their skill sets so they can remain competitive throughout their careers. That might be especially useful as unemployment stemming from the pandemic rises.
“The question becomes, is this going to be a temporary effect or is this going to be an event that launches all these ed-tech platforms?” said Victor Kao, a senior TMT analyst with RSM.
With the rising importance of collaboration software and other technologies that enable remote work, though, companies also need to look out for more phishing attempts, Kao points out.
“Hackers are taking advantage of the fears and anxiety caused by the pandemic," he said. IT teams need to closely monitor traffic and activity in this new environment in order to fix any blind spots hackers may try to expose.
The coronavirus pandemic has also brought about some change in Big Tech’s historically strained relationship with Washington, Shenk said. The federal government has been in talks with Facebook, Google and other companies about “how they can use location data gleaned from Americans’ phones to combat the novel coronavirus,” The Washington Post reported in mid-March.
The TMT sectors may be among the least affected from the pandemic in the overall economy, said Kao, but certain segments of entertainment are more vulnerable to disruption than others.
The situation is having a huge impact on movie theaters—many of which have had to shut their doors for a period as governments and localities order stay-at-home orders to residents—and “we could see bankruptcies in this subsector,” Kao said. At-home television entertainment isn’t immune, either; the cancellation of the NBA season and now the 2020 Summer Olympics could result in more than $1.5 billion in lost ad revenue, Kao said, noting that other networks are at risk to lose hundreds of millions of ad revenue dollars.
When it comes to local broadcasting, ad revenue could see a significant uptick this year because of a massive increase in viewership as we all tune in for the latest COVID-19 news. “But people are going to want to escape from reality every now and then, and will want to watch more entertaining content,” Kao said. “A shutdown in television studios, reality television, etc., could lead to a slowdown in content which could translate to lower viewership and ad revenues."
Streaming platforms are expected to see growth as cooped-up Canadians and Americans binge-watch television shows and movies to get them through days of self-isolation. But the content on these platforms still matters, Kao said—just because a business has a streaming platform doesn’t mean it’s guaranteed to do well during this time. COVID-19 is also going to further amplify cord-cutting, Kao said, as people continue to shift from cable and satellite subscriptions to devices to stream TV. Roku, Hulu, Sling and YouTube have all seen significant spikes in membership during the pandemic as people find alternative options to stream content and save money. Companies such as Sling are even offering free live TV streaming until June 30 to increase their membership base in the hope that viewers stay on their platform in the future.
The telecom industry has been “relatively insulated” from the impacts of COVID-19, said Davis Nordell, a senior TMT analyst at RSM. While equipment sales could take a hit as a result of the economic crunch, carrier revenue from high-margin services “should benefit” from the growing work-from-home trend, according to Bloomberg Intelligence.
“A lot of what’s going on now is sort of a shock to the system that’s created an immediate need to adopt remote working environments,” Nordell said. “And as they address key concerns, planning for a remote workforce, I think it’s important for them to take the long view.”
It’s possible that COVID-19 will have some impact on the speed with which 5G can be rolled out, but the demand for 5G is still anticipated even if the timeline changes. Carriers are already responding to the increased importance of connectivity during the pandemic; Verizon gave users extra high-speed data, tech news site CNET reported this week. That followed a similar move from T-Mobile.
Though internet traffic is “surging to records,” broadband providers so far have been able to manage and adapt, Bloomberg reported earlier this month.