The economic picture sharpens during earnings season

There’s a scene in Men In Black that I keep thinking about. 

Will Smith’s character tours the MIB headquarters after becoming an agent and he pushes a little ball that then zips all over the place, knocking things down, breaking things, causing a general ruckus. Tommy Lee Jones’s character, after snatching the ball in a specialized glove, says, “This thing is what caused the 1977 New York blackout.”

Something so tiny causing such a catastrophe. Imagine. 

The coronavirus has wreaked havoc on planet Earth. It highlighted the frailties of the media business, showed the yawning chasms between the haves and the have-nots, and has crippled businesses, both large and small.

According to a MediaPost story yesterday, Brand Finance, a “brand valuation consultancy,” found that the 500 most valuable companies can lose 10 percent of their brand value. In a statement, Brand Finance said,

“Based on this impact on enterprise value, Brand Finance estimated the likely impact on brand value for each sector. The industries have been classified into three categories – limited impact (minimal brand value loss or potential brand value growth), moderate impact (up to 10% brand value loss), and heavy impact (up to 20% brand value loss) – based on the level of brand value loss observed for each sector in the first quarter of 2020.”

Directionally, this makes sense. Just look at earnings reports over the last few days from a cross section of industries. Almost no one was spared. A smattering:

• WPP reported a 4.9 percent decline in revenue. 

• American Airlines loses $2.2 billion in the first quarter. People aren’t flying.

• Criteo posted a 10 percent drop. People aren’t pumping ads. 

• Comcast posted $2.1 billion in net income, about 40 percent lower than the first quarter last year. People aren’t going to theme parks.

• McDonald’s earnings fell 17 percent. People aren’t going to restaurants.

CNBC has a good look at where we’re at this earnings season. It’s a weird one. 

Also worth noting that the companies that have successfully got us addicted to screens seem to be faring a bit better. 

Facebook, for example, reported an 18 percent jump in revenue. Though it did say “We experienced a significant reduction in the demand for advertising, as well as a related decline in the pricing of our ads, over the last three weeks of the first quarter of 2020.”

And while Twitter reported ad revenue dropped about 27 percent from March 11 to March 31, the company had a strong Q1. Variety reports: “Total ad engagements increased 25% year-over-year in the first quarter, Twitter said. U.S. revenue totaled $468 million, up 8% year-over-year, while international revenue dropped 4% to $339 million.”

The Wall Street Journal also reports today that consumer spending plummeted in March:

“Economists surveyed by The Wall Street Journal forecast the Commerce Department will report Thursday that household spending declined 5% last month, which would mark the steepest monthly decline in records tracing back to 1959.”

The domino effect of the coronavirus in the media industry ends up at publisher doorsteps. If companies are losing money, laying off people, and not creating products to market, then they’re not spending on advertising. So the flow of money doesn’t hit the agency (which cannot sit on client fees), and ultimately not the publisher. The net result, sadly, are layoffs.

Yesterday, The Daily Beast reported that the New York Post was the most recent publisher to lay off staff. 

“But in Wednesday’s meeting, [Post publisher Sean] Giancola said the Post would take a number of additional steps. The publication plans to freeze all new hiring, cut and even eliminate most freelance budgets, and lay off staff. And while the publisher said that he planned on bringing back furloughed staff after several months, he said he could not guarantee further layoffs in the near future.”

(One interesting thing: Digiday reports that publishers are using Facebook’s low acquisition rates to grab subscribers and newsletter signups.)

In mid-March, just as society was grinding to a halt, a media CEO told me to expect bad days, saying, “We’re looking at 5-10-15% consistent staffing cuts across the board. Everybody. They won’t have product because no one’s making anything because no one is going to factories. We will see GDP reduced -- we won’t have as bad of financial recession because balance sheets are better than they were [than in 2008]. But we’ll see a bigger economic slowdown because productivity is down more than recession was.”

Earlier today, the week’s unemployment numbers came out: 3.8 million filed for unemployment for the first time, taking the total of Americans unemployed over the last six weeks to about 30 million. Or 1 in 11 Americans. Or about 1 in 5 working Americans. 

The damage from such a tiny thing. 

(Clapton and Winwood, Little Wing)

Thank you for subscribing; thank you for reading. If there’s something you think I should be paying attention to, drop me a line.