The PostCOVID Future of Commerce, Finance, and More
PMG is providing near-daily briefings to track the novel coronavirus outbreak and its impact on the economy and business world for our customers. The briefing for May 27th, 2020 was sent to PMG customers this morning, and can be found below.
I hope you had a summery Memorial Day weekend. We’re in for a short yet newsworthy week, so let’s jump right in. Today, HBO Max (finally) launches, and on Friday, Steve Carell fans rejoice with the release of Netflix’s highly-anticipated Space Force.
For today’s briefing, let’s review what else is going on:
Reopening and the road to economic recovery
WFH takes center stage
The future of commerce, finance, and more
Summer (and beyond) advertising outlook
According to The Wall Street Journal, the worst economic effects of the coronavirus shutdowns may be over, with new data signaling the U.S. economy is recovering, albeit slowly. Though unemployment remains high, “…truck loads are growing again. Air travel and hotel bookings are up slightly. Mortgage applications are rising [and] more people are applying to open new businesses.”
As of now, the economic recovery does not appear to be overtly associated with the holiday weekend, though plenty of people were out and about. Memorial Day weekend featured crowded beaches, restaurants, and bars across the U.S. with officials urging social distancing and self-quarantining after crowded outings. Masses at Florida beaches and videos of pool parties at the Lake of the Ozarks in Missouri made international headlines.
Source: Time Magazine screengrab of Missouri party
And it’s not just stateside. According to Apple’s mobility data, a noticeable uptick can be seen across Germany, Italy, the United Kingdom, and the United States these past few weeks.
Source: Apple Mobility Trends
But despite the itch for things to return to normal, the coronavirus is still very much present. The U.S. and others have restricted travel to and from Brazil as the country’s coronavirus outbreak grows worse, and Wuhan tested 6.5M people (so far) in a matter of days after a surge of cases. An aide of Prime Minister Boris Johnson is in hot water after traveling hundreds of miles despite travel restrictions across the region.
But the slow return to normal may have come too late. This week, TGI Friday’s announced it would permanently close 20% of its U.S. locations, joining the ranks of dozens of brands in the closing of stores and restaurants.
The World Health Organization suspended trials of hydroxychloroquine over safety concerns despite the drug being touted by the U.S. Administration for its positive effects. The European Union has proposed a stimulus package worth €750B, or $860B by issuing bonds in capital markets to raise funds and finance the bloc’s economic recovery. All 50 U.S. states have reopened along with many European and Asian countries. For now, it’s a game of wait-and-see, either for an anticipated second wave of infections or continued reopening to full capacity in public spaces.
According to The New York Times, new studies by the Conference Board suggest that Americans are feeling worse about the present but slightly better about what the future holds than they did one month ago, further proof that the coronavirus situation and its effects change rapidly. The threat of a second wave in the fall looms over any signs of near-term progress and makes many analysts hesitant to sound too eager about a rapid recovery.
Last week signaled a turning point in the future of how (and where) we work. Just as the tech industry was the first to shift to work from home when the outbreak began, they’ll likely be the very last to return to the office, if at all.
In a livestream on Thursday morning, Mark Zuckerberg announced that Facebook would be “making most of its open roles in the United States available for remote recruiting and hiring. And later this year, many of Facebook’s 48,000 employees around the world will be able to request a switch to remote work. Within the next decade, Zuckerberg predicts, Facebook could be a largely remote workforce.”
Related: Facebook 2020 Annual Shareholder Meeting takes place today.
The impact of this change could completely reimagine the Silicon Valley and New York City real estate markets, and also transform other cities, including Atlanta, Dallas, and Denver. Places where Facebook, in particular, says it plans to open “hubs” for its new, mostly remote hires. While Facebook says its switch to remote work will take years, others are moving much faster.
Joining the social media giant in the race to remote are Coinbase, Lambda Schools, Shopify, and Upwork, all announcing earlier in the week that their people would be free to continue working from home, indefinitely. Following Facebook (just given its sheer workforce size), Shopify’s announcement set off the most fuss. In a tweet, CEO and founder Tobi Lutke called the ecommerce platform company “digital by default”, giving us new terminology to describe the move to remote-first work postCOVID.
According to SHRM, Capital One, Google, JPMorgan, Microsoft, Morgan Stanley, PayPal, Salesforce, Slack, and Zillow have all extended their work from home options in the last few weeks. From Forbes, “Apple is one of the lone tech giants bucking this trend. The company, according to Business Insider, has requested some employees to return to work. Apple is known for its unique culture and tendency toward secrecy, which may account for the hesitancy [towards] remote work.”
The latest: Google is planning to reopen its offices starting on July 6th, but with only 10% of building capacity, rising to 30% by September.
This trend likely won’t be reserved for the tech sector. A Gallup poll recently revealed, “Now that some of these employees may be able to return to their workplace, it appears only a quarter are emotionally ready. Another quarter [is] reluctant to return specifically because of concerns about contracting COVID-19, while half have a personal preference for working remotely.”
On the topic of returning to the office in the interim, the looming fear of a second wave coupled with considerations for employees’ emotional readiness are making things interesting for decision-makers.
It’s an unusual challenge for company leaders and business owners. Offices cost money and have sat largely empty for over two months now, with few signs that corporate workers will return soon. Many firms rely on the office to sustain company culture (which companies like Gitlab have some opinions about). A lack of commuting cuts down on time spent in the car or on public transportation (which is having its own issues given the spread of disease), reduces emissions — the list goes on.
According to Axios, “a majority of U.S. remote workers (59%) report feeling as productive as they do in the office, according to a Morning Consult survey of full-time workers, on behalf of Prudential. But about half also report feeling less connected to their company (55%), more stressed in ways that negatively impact their work (46%), and working more hours from home (47%).”
Socially, the concept of “going to an office to work” is well ingrained, affecting our attitudes, culture, and, lastly — our decisions. From where we live to what we invest our money and time into — a comfortable car versus a larger backyard, renting an apartment versus a rental home, adopting a cat versus getting a dog.
If this trend holds up, the cultural and economic shift to remote-first work, and “digital by default” companies will have an incalculable impact across sectors from retail to real estate, personal finance to fitness, entertainment to education, and so on.
Related: The Commerce Department’s new home sales report showed that home sales increased in April, “despite nationwide lockdowns that banned real estate agents in some states from even showing listed houses,” according to Axios.
There’s no time like a global crisis to make fundamental changes to the digital industry across sectors such as advertising, commerce, digital streaming, and finance. Let’s skim through the updates you might have missed.
The news: Several big commerce developments made headlines in recent weeks, that when combined, show us a clear path for forward postCOVID. One clear winner: Shopify.
The backstory: We all know significant changes are disrupting the retail and commerce sectors. Department store bankruptcies, indefinite store closures, and Amazon halting its shipment of nonessential goods for an extended period of time combined to create an enormous area of opportunity for small to medium-sized businesses and the platform that powers them — Shopify. Which, in turn, has experienced record-breaking growth over the last 30 to 60 days.
So much so that earlier this month, the ecommerce platform company overtook the Royal Bank of Canada to become the country’s largest company by market capitalization. The stocks have surged 140% in the last two months, and The Wall Street Journal reports the ecommerce platform company is nearing a market value of $100B, roughly the size of IBM.
The details: Recently, Facebook and Shopify partnered to produce Facebook Shops, “a new and free tool helping merchants create a customized online storefront for Facebook and Instagram.” This same month, Shopify also announced a partnership with Pinterest, enabling businesses in the U.S. and Canada that use the ecommerce platform to turn their products into shoppable pins.
Related: Forty-one percent of respondents to an April study by Ipsos and USA Today said they had shifted more of their shopping from physical stores to online, compared with 13% who said the same in March.
In a nutshell, Shopify will help facilitate omnichannel commerce for millions of small businesses (known as merchants) through social media partnership differentiators, just as the company makes its move into financial technology.
The news: New features from Shopify include a debit account and card for business customers (Shopify Balance), similar to a business bank account, but without fees or minimum balances. Shopify also announced a “buy now and pay later” interest-free installment payment for customers at its virtual event this month. The company even announced its AI-powered fulfillment network, which is now actively accepting merchant applications.
The bottom line: To this end, Shopify will virtually own the entire relationship with millions of digital storefronts. By being at the right place at the right time, Shopify, like Zoom, has emerged as a clear winner during the pandemic. From The Wall Street Journal,
“As of the first quarter, e-commerce sales totaled $160B in the U.S. alone, according to the U.S. Census Bureau. But at just under 12% of total U.S. retail sales, that still leaves plenty of room for growth.”
“The pandemic is accelerating this shift, forcing businesses to close physical locations and consumers to buy online. Shopify, which allows merchants to easily run online stores, is now cashing in on both trends. The company makes money by a mix of recurring subscription fees and add-ons like payment processing, which grow[s] with transaction volumes. Analysts are forecasting annual gross merchandise volume on its platform to reach more than $85B this year, more than double that of 2018.”
Though Amazon will still undoubtedly reign, especially for large retailers and given its long-established, global operational infrastructure, it’s exciting to see how small businesses and new entrants are shaking things up.
Speaking of Amazon, Prime Day will reportedly move to September, giving its supply chain time to catch up after the surge of online orders for both essential and nonessential goods. Also related, Amazon’s 2020 Annual Shareholder Meeting will take place today. Virtually, of course.
The Yes, an AI-powered shopping platform from Julie Bornstein, the former COO of Stitch Fix, launched this month, offering the personalized attention of a boutique with the variety of a department store experience by using intelligent shopping to integrate products and build a store around each customer’s preferences. From Martech Series,
“The Yes offers the broadest range of brands to serve women’s high/low shopping, bringing together brands previously unavailable from the same source, to offer the consumer the best selection, and the best fit for their personal style. To offer this selection, The Yes partners with widely distributed specialty and DTC brands.”
At launch, The Yes carries more than 150 of the leading brands across the industry, including Ralph Lauren Collection, Everlane, La Ligne, Rosie Assoulin, STAUD, Balenciaga, Acne Studios, and more.
“When a brand integrates with The Yes, the platform sells each brand’s full digital catalog, offering its entire assortment by integrating into The Yes fashion algorithm, which decodes every SKU and ranks it for each shopper.”
Many of the biggest companies in streaming, including Netflix and Amazon, continue to enjoy a surge in viewership during the coronavirus crisis as people spend the majority of their time at home. As people begin to venture out, but movie theaters remain closed, places like the Hard Rock Stadium are being reopened as drive-in movie theaters.
According to The Wall Street Journal, “streaming service Quibi is beginning to feel the pinch of its lackluster performance since launching last month, as advertisers including PepsiCo, Taco Bell, Anheuser-Busch InBev, and Walmart seek to defer payments and the company looks to cut costs.
The advertisers have asked for the changes because of concerns about the service’s low viewership or the impact of the coronavirus pandemic on their businesses.”
Refresher: “Quibi struck ad deals valued at $150M in the run-up to its April 6th launch, selling ten blue-chip marketers on the prospect of a mobile-first ad platform featuring short-form movies and television shows. As of last week, Quibi had been installed by users about 4.2M times, and the company had signed up 1.5M users to a free 90-day trial, some of the people said. Quibi was initially targeting about 7M paying subscribers in its first year and planning to have 16M customers in three years.”
Quibi is having a rough start. The app faces a patent lawsuit backed by hedge fund Elliott Management, rapidly enabled Airplay capabilities for its mobile streaming app after user demand, and still won’t allow viewers to share screenshots off-app, a key user behavior that helps content and media go viral.
In the biggest media news of the week, HBO Max launches today in the U.S., marking AT&T’s (late) entrance into the streaming wars almost two years after wrapping up its $85B+ acquisition of Time Warner.
From NBC’s Byer’s Market, “HBO Max’s chief selling point will be its vast library of content — Sopranos and Game of Thrones, Friends and The Big Bang Theory, Casablanca and the Harry Potter films — along with a handful of new original shows and movies. It’s primary challenge will be its price tag: At $15 a month, it is among the most expensive streaming services.”
“AT&T CEO-in-waiting John Stankey hopes to get to 50M subscribers by 2025. Getting there will require HBO’s ~35M subscribers to shift their subscriptions to HBO Max and at least ~15M new subscribers to pay $15 a month amid a pandemic that has rocked the American economy.”
Also in the news, the return of sports.
From NBC’s Byer’s Market, “NHL Commissioner Gary Bettman has laid out a plan for professional hockey to return to play in a 24-team playoff series.” This comes two and a half months after shutting down due to the coronavirus outbreak and it will be one of the first (and largest) North American pro sports league to announce definitive plans to return to play. It provides a major revenue injection for TV networks that are suffering from the suspension of live sports.
The NBA is in talks to restart the league in July and relocate the whole league inside the Disney complex in Orlando, with professional baseball also trying to get a deal together soon. As sports fans anxiously await for live sporting events, ESPN is partnering with Peloton to broadcast a spin class competition that will feature pro athletes across the sports world. The All-Star Ride is scheduled for May 30th.
Following a massive bidding war, John Krasinski’s Some Good News ended its 8-episode season and has been licensed to ViacomCBS in a rich deal that has (unfortunately) caused plenty of drama for The Office and Jack Ryan star. Media consumption is up (read: way up), and video is seeing the highest increase in the U.S., according to eMarketer. Since CBS has products in each form of media, this type of M&A activity bodes well for broadcast TV and streaming video growth, both of which are experiencing a ~40% lift in engagement since the lockdowns began.
What else you might have missed:
Joe Rogan and Spotify struck a $100M deal, moving his podcast and video podcasts off other platforms and onto Spotify exclusively. The podcast garners 200M monthly downloads, “a monster of a product for Spotify to pick up.” Amazon is also looking to “invest in localized podcast content, like news and sports,” according to Axios.
Reddit is said to have recently restructured its advertising sales division with new teams and a new VP of advertising to help the platform appeal to performance-based marketers.
Historically, Memorial Day teases the start of summer with fireworks, live concerts, and summer sales to send us into warmer weather. Of course, given our current circumstances, this weekend was probably a bit different for you than Memorial Days of the past. In an updated report, MoffettNathanson outlined what the recovery for advertising may look like in the months ahead that’s worth taking note of.
We’ve included the most substantial predictions (and our thoughts) below, but in summary: prepare for ad spending to return to pre-public health crisis levels sometime in 2021.
“Given both the shifts in consumer behavior to ecommerce and the ability of digital to produce more targeted and efficient results, this snap-back is essentially fueled by a return to growth in digital spending at the two largest ad platforms (Alphabet and Facebook),” Nathanson argued in his investors note.
Notable forecasts include U.S. advertising growth to fall by 8.6% in 2020, led by a 13% decline in traditional spending and subsequent 3% fall in online ad spending. Though, the digital landscape is shaped by a “streaming space that predates the coronavirus pandemic, explaining the rapid recovery forecast for next year.” He continues, saying, “By 2021, we estimate that digital ad spending — even excluding the TV dollars that go into the AVOD platforms like Hulu, Peacock or Pluto — will source 54% of all ad spending in the U.S.”
During the coronavirus, national TV ad buys made during the current upfronts created a solid foundation of funds (and were not easy to cancel), combined with political ad buys on local TV stations ahead of the U.S. presidential election, which essentially offset lost advertising revenue from troubled marketing brands.
Since streaming video was all the rage before the COVID-19 crisis emerged, Big Tech continues to dominate and capture the lion’s share of domestic advertising spend across mediums — streaming video, social platforms, ecommerce solutions, and organic search and video.
Refresher: Big Tech is well entrenched across markets, with several leading digital-first products across digital categories. Amazon with Twitch (streaming), Amazon Advertising (digital advertising), and AWS (cloud computing), Alphabet with Google Search (digital advertising), Google Cloud Platform (cloud computing), and YouTube (streaming), and Facebook with Facebook advertising (digital advertising), Facebook Watch (streaming), Instagram Live (streaming), and Instagram advertising (digital advertising).
According to Nathanson, “Big picture, we see a solid bounce back in ad spending in 2021 led by 2% growth in online ad spending (which returns to pre2020 growth rates), while TV spending is expected to be flat.”
Bottom line: MoffettNathanson predicts a “U-shaped” recovery for advertising in 2020.
And with that good news, I’ll leave you with a few long read recommendations on several developments we have to look forward to this summer.
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Thank you for your time today. We’ll see you Friday.
Posted by Abby Long
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