Cocooning From Coronavirus To Boost Ecommerce, Advertising Platforms, Local Search

Ecommerce will be the sector least affected by COVID-19, a strain of coronavirus -- at least in the near term, according to one Wall Street Analyst. Alibaba has begun offering companies free cloud services to keep their business stable and running.

“Medium term, we believe "cocooning" could actually boost e-commerce growth rates, while online marketplaces should be somewhat less impacted than online retailers or DTC brands due to their diversity of suppliers and/or seller base,” wrote Baird Equity Analyst Colin Sebastian. “We believe negative Q1 guidance revisions are possible or even likely across our coverage as companies attempt to quantify the near-term headwinds from the Covid-19 outbreak.”

Sebastian believes that online advertising should feel some impact, particularly travel. He notes that online advertising is “somewhat” susceptible to economic cycles, partly due to the higher saturation rate of digital marketing. Travel is about half of total ad spend.

The coronavirus outbreak is expected to have a negative on travel and leisure as people delay trips and avoid public places, but all this could be partially offset by higher click or impression volumes in categories such as Health and Pharma, such as the repertory face-mask industry, where 3M’s 95 grade masks are difficult to find.

Online advertising platforms such as Google, Bing and other search engines that sell paid search, as well as display and programmatic ad servers, will benefit from people staying out of stores. Sebastian points to Google, Twitter, Facebook, Yelp and Pinterest.  

"Video games could benefit from any prolonged 'cocooning'," he wrote. He also said it's important to note that "interactive entertainment can be counter-cyclical, as a relatively inexpensive form of entertainment vs. activities such as travel, dining and movies, in particular for console and PC games, which are primarily used at home."

China-based search engine Baidu told a different story during its fourth-quarter earnings call on Friday. "The coronavirus outbreak has undoubtedly impacted our economy," said Baidu CEO Robin Li during a call with analysts on Friday. "The near term-impact on our business has been negative."

Daniel Zhang, chairman and CEO of Alibaba Group, told investors and analysts during a December 2019 earnings call that the company has committed to fighting the outbreak.

Marty Puranik, CEO of Atlantic.Net, a cloud hosting solutions provider to the healthcare and ecommerce industries, said Alibaba’s cloud business unit began reaching out to its customers offering them $1,000 credit to purchase cloud services. The offer is geared toward organizations impacted by the Coronavirus outbreak to keep their business stable.

“Other cloud companies will likely start offering the same,” he said. “The theory is to help out because people are not able to commute to work.”

Companies like Zoom are doing well because of the shift online to work from home from a possible pandemic, which is defined as the worldwide spread of a new disease.

CNN reported that the last pandemic was the H1N1 flu in 2009, which killed hundreds of thousands globally.

The more interesting part will be post-pandemic, meaning whether people revert back to their previous behavior such as going back into the office, Puranik said, and buying more in stores.

"We’re seeing shortages for parts," he said. "A significant amount of drugs are made in China, so there probably needs to be a security policy put in place so that a certain percentage of drugs are made in the U.S."

There is no evidence that coronavirus can be transmitted from soft surfaces like fabric or carpet to humans, but Purnaik said he has seen sellers on Amazon now tout that their merchandise is “coronavirus free.”

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