Comment by PowerfulWizard | Hacker News Reader

Comment by PowerfulWizard | Hacker News Reader

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I think we're going to see three basic categories:

1. Essential+Unaffected: demand will be steady because there is no other choice, i.e. food, communication, ecommerce.

2. Horribly Affected: maybe even illegal to open right now, and when they open demand will be down significantly i.e. restaurants, bars, live entertainment, travel, some segments of education like language schools that cater to international, conferences and trade shows. Maybe back to full strength in 2 years but not going to be fun for a while, huge hit to demand.

3. Affected proportional to total global economy: If the overall economic activity goes down 20%, some businesses are going to track that. Transportation, business services, maybe banking.

The governments of the world certainly have the ability to stimulate asset bubbles, but I'm not sure that they can generally stimulate business activity other than on the demand side, i.e. rising incomes for labor. I think there could be a stratification of national economies performance over the next 2 years based on the ultimate success of their COVID-19 response. I'm seriously considering if I should try to predict the most robust regional response and look at moving there post crisis for the next 2 years or so. I think there could be significant differences. Not necessarily who is suffering the least, but who is going to emerge most vigorously.

Also don't forget the effect of competitive position within an industry.

I have a friend who owns a factory in a very unsexy niche industry (packaging). They're relishing this crisis, because they manage the business very conservatively in terms of cash flow and leverage, and are expecting many of their competitors to go bankrupt in the near future. When the dust settles, they'll be one of the few left over, which means they can charge much higher rates. This'll likely be the story in many industries.

Rich monopolies like Google and Facebook are going to do fine. (And note that both of them are still hiring, meaning they can potentially clean out the supply of engineers while many of the newer growth unicorns have instituted hiring freezes.) Marginal players in competitive industries are going to get killed.

> "Rich monopolies like Google and Facebook are going to do fine."

Both of those are primarily dependent on ads for revenue and ad spending is already dropping precipitously, as far as I've heard?

Yeah, but look at their cash positions. I posted an analysis [1] based on their published financials in another thread; basically their revenue could go to zero and they'd be fine for a year and a half. With a more realistic 75% drop in revenues they'd be fine for about 5 years; with a 50% drop in revenues they'd still be profitable.

[1] https://news.ycombinator.com/item?id=22884042

Isn’t this a result of good governance, ie no stock buybacks?

That's one factor. Also great margins, a disciplined acquisition strategy, monopoly position, an inherently labor-efficient business model, and a shrewd prop-trading desk.

FYI they've been heavily buying back stock

Their revenue will suffer, but they have lots of cash. They are prepared to weather the storm.

I'm thinking about supply side and demand side differently right now. The supply side business outcomes are going to be based on the customer profile, the financial strength, and some localized effects of the pandemic situation. I'm not sure that we'll see an '08 style credit crunch. I think governments want to stimulate and credit is one of the main levers they can try to push. I don't know if it will work to keep failures down, but I certainly think they'll try. But I think the supply side will collectively adapt as necessary to supply the demands for products and services as they exist. I think consumer demand is going to be the constraint for the next 2 years.

"I'm seriously considering if I should try to predict the most robust regional response and look at moving there post crisis or the next 2 years or so. I think there could be significant differences. Not necessarily who is suffering the least, but who is going to emerge most vigorously."

Same...always better to thrive than to survive and we all get to choose :)

I don't think even #1 is out of the woods. Demand for food will change and probably not for the better with so much people without a job. E-commerce will increase in some areas, but lots of companies that are not dealing with essencial products will close again due to the large number of unemployed. If the rest of the economy tanks, advertisement will also be in a difficult position.

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