How are the TMT stocks doing during the Covid-19 crisis? Share prices have been falling worldwide since 20 February and are now around 30 percent lower than at the end of 2019. The increased demand for bandwidth is making infrastructure stocks the exception on the market, with some even showing a positive performance in the year-to-date. Many incumbents are also doing relatively well. Netflix is another outperformer, with its share price still higher compared to the start of the year, while Disney faces a loss of 41 percent. The pure broadcasters are almost all underperforming.
Covid-19 impact: positive for bandwidth demand
The coronavirus outbreak and related confinement measures are sending stock markets lower around the world. Shutting down large parts of the economy will have a major impact on growth, and many activities are no longer even possible due to restrictions on movement. There will be multiple effects on the TMT sector, both positive and negative.
- Positive: use of digital/IP applications will increase. This benefits media consumption (film, TV, gaming, music). Remote working benefits VPN and internet traffic. Bandwidth demand will increase significantly.
- Negative: personal contact for customer support and sales as well as network build and maintenance activities will be interrupted. Public events such as sport, cinema, theater and concerts are suspended, as is production of new content (live shows, films, TV programmes, music recording). Jobs are already disappearing among support staff.
Increased volatility
These factors are reflected in stock prices, which (in theory) take account of future expectations. Volatility (the fluctuations in share prices) is increasing though, amid a high level of uncertainty. Even the intraday fluctuations are often huge in recent weeks. Government measures to fight the virus vary significantly around the world, good forecasts are hard to come by, developing a vaccine will take many months, and in the mean time cinemas are already re-opening in China. Based on past performance, a drop in the most important indexes of around 30 percent suggests that it can still get much worse.
Week 12: reversal of week 11
Stock movements in the week starting 16 March (week 12) are probably not especially informative. We limit the discussion to the most notable in the European telecom sector.
- The Eurostoxx 50 index fell only 1.5 percent, whereas our basket of European telecom stocks ended the week with a gain of 2.6 percent. The S&P 500 finished the week 15 percent higher.
- Nearly all the European telecom stocks that performed well during the week were largely reversing the losses of the previous week. The biggest gainer, Orange Poland rose 26 percent, after falling 22 percent the previous week. KPN showed a similar performance, gaining 19 percent after falling 16 percent in the week of 09 March.
YTD: incumbents doing relatively well, infrastructure stocks and Netflix ahead
The year-to-date performance gives a better insight. The S&P 500 is down 28.7 percent since the start of the year, and the Eurostoxx 50 has lost 32.0 percent over the same period. We look at the TMT stocks in comparison.
- Among major operators, Deutsche Telekom is down 17 percent, Vodafone -23 percent, Liberty Global -22 percent. This means they are doing somewhat better than the broader market.
- Big losers in the telecom sector include the global satellite operators and 'challenger' operators. These include Altice Europe (-52%), Veon (-47%), MasMovil (-40%), TalkTalk (-40%) and Nos (-36%). BT is also down 34 percent.
- The best performers are mainly infrastructure providers and some European incumbents (except BT and TIM), such as: Intred (+9%), Elisa (+6%), Inwit (+5%), Iliad (+2.5%), Digital Realty (+1%) and Swisscom (+1%).
- There are a few winners in the media sector as well, such as VOD providers Netflix (+3%) and China's Bilibili (+8%). Netflix does not expect to have any shortages in its content library as a result of the production stoppages.
- The worst hit media shares are Australia's Seven West (-76%), US publisher Gannett (-75%) and ViacomCBS (-71%).
- The media conglomerates have a more mixed performance: AT&T (WarnerMedia) -27%, Comcast (NBCUniversal) -26%, Sony -22%, Vivendi -25%, Walt Disney -41%. Only Disney is clearly underperforming.
- Most broadcasters are trailing the market, as ad revenues are expected to drop significantly in line with the economic slowdown: RTL -33%, ProSieben -63%, Mediaset -36%, ITV -58%, Atresmedia -19%, M6 -34%, TF1 -31%. ITV has already said it's cutting its programming budget and TF1 abandoned its guidance.
