4 ms·

> Now that the cash is drying up, people are bouncing back to the old patterns and approaches. We haven't got to a place where we can measure a bounce-back to

by gopalv 6y ago

> Now that the cash is drying up, people are bouncing back to the old patterns and approaches. We haven't got to a place where we can measure a bounce-back to "the old". For instance, as far as I can see into the future, I'm still going to use Lyft when I travel in the US. I'm price sensitive, but the alternatives are still full of externalities if I can't hail a cab off the street easily. Of course right now, nobody is traveling outside their home cities, nobody is going to restaurants (& restaurants don't have any leverage on delivery companies), the coworking spaces are all closed, there's no parties to cleanup with taskrabbit & that beach weekend in Carmel-by-the-sea won't happen. The problem I think is that it's going to take 500+ days to get back to even finding what percentage of the economy would go back to doing things as they used to in 2019. And what percentage will just scale down everything and force the companies to skip non-recurring engineering expenses (I'd say iPhone SE is a good example here of "good enough").

caseysoftware 6y ago
The "bounce back" is the interesting piece to consider. If you assume that business dropped to near-zero in March and worse in April and May, what does the rest of the year look like? If things pick back up to February levels on June 1st, we're still at -25%. That's the absolute best case scenario and there's nothing that backs that up. If things start at half and ramp up to full through December, we're closer to -40%. That's more likely than the first scenario but feels unlikely. If things start start slowly in June and grow monthly for December to be at February levels, we're closer to -50%. Forget the industry, how many companies can survive losing half their revenue (not profit) for the year? (Obviously, this assumes a flat/even revenue distribution during the year. Companies that have their busy season in March-June are even worse off.)
- Leherenn 6y ago
  Wouldn't the best case scenario be all the missed revenue in march-may are simply deferred to the following months? Of course, for a lot of business that's simply not possible (they were already at capacity), and for the rest that's very unlikely, but it seems possible for some very specific industries.
  - caseysoftware 6y ago
    Maybe but I've been struggling to think of a business - let alone an industry - that applies to. Restaurants? No, those meals are gone. Oil changes? No, you've driven less miles. Haircuts? You're not going to get two to celebrate. Clothing? Maybe.. because things are still wearing out. Travel? Nope. Technology? Maybe. Durable goods and appliances? More likely. What are you thinking of?
    - Leherenn 6y ago
      Durable goods and appliances as you said, and regular maintenance. If you need to have something inspected once a year, then you might have been able to postpone it some, but you'll need to do it eventually. Also travel is not so clear. I realise I am quite lucky, but my bottleneck for travel is vacation days. I will still go on holidays the same amount of time this year, but it might be in a different place than expected if the borders do not reopen. But yes, it certainly does not apply to the majority of businesses.
  - donavanm 6y ago
    Companies are already doing this with “EBITDAC”, appending “...Corona.” Using estimated earnings/sales, or simply substituting Q3/Q4 last year for this years Q1/Q2 earnings. The cited motivation that Ive seen has been between counterparties and covenants around debt. Companies need lending to survive. But the immediate business performance would cause an immediate breach of covenants or terms, forcing actions like margin calls or liquidation. That would leave both lender and company worse off. So instead they agree to substitute in some plausible values with the expectation that business will return to “normal” sooner or later, inside the lifetime of said contract. I havent seen anyone actually posit that revenue/earnings/profit are actually going to fully return immediately, nor that theyll capture that “deferred” business. As always matt levine had a good take on this last week.

by gopalv 6y ago

caseysoftware 6y ago

The "bounce back" is the interesting piece to consider. If you assume that business dropped to near-zero in March and worse in April and May, what does the rest of the year look like? If things pick back up to February levels on June 1st, we're still at -25%. That's the absolute best case scenario and there's nothing that backs that up. If things start at half and ramp up to full through December, we're closer to -40%. That's more likely than the first scenario but feels unlikely. If things start start slowly in June and grow monthly for December to be at February levels, we're closer to -50%. Forget the industry, how many companies can survive losing half their revenue (not profit) for the year? (Obviously, this assumes a flat/even revenue distribution during the year. Companies that have their busy season in March-June are even worse off.)

Leherenn 6y ago
Wouldn't the best case scenario be all the missed revenue in march-may are simply deferred to the following months? Of course, for a lot of business that's simply not possible (they were already at capacity), and for the rest that's very unlikely, but it seems possible for some very specific industries.
- caseysoftware 6y ago
  Maybe but I've been struggling to think of a business - let alone an industry - that applies to. Restaurants? No, those meals are gone. Oil changes? No, you've driven less miles. Haircuts? You're not going to get two to celebrate. Clothing? Maybe.. because things are still wearing out. Travel? Nope. Technology? Maybe. Durable goods and appliances? More likely. What are you thinking of?
  - Leherenn 6y ago
    Durable goods and appliances as you said, and regular maintenance. If you need to have something inspected once a year, then you might have been able to postpone it some, but you'll need to do it eventually. Also travel is not so clear. I realise I am quite lucky, but my bottleneck for travel is vacation days. I will still go on holidays the same amount of time this year, but it might be in a different place than expected if the borders do not reopen. But yes, it certainly does not apply to the majority of businesses.
- donavanm 6y ago
  Companies are already doing this with “EBITDAC”, appending “...Corona.” Using estimated earnings/sales, or simply substituting Q3/Q4 last year for this years Q1/Q2 earnings. The cited motivation that Ive seen has been between counterparties and covenants around debt. Companies need lending to survive. But the immediate business performance would cause an immediate breach of covenants or terms, forcing actions like margin calls or liquidation. That would leave both lender and company worse off. So instead they agree to substitute in some plausible values with the expectation that business will return to “normal” sooner or later, inside the lifetime of said contract. I havent seen anyone actually posit that revenue/earnings/profit are actually going to fully return immediately, nor that theyll capture that “deferred” business. As always matt levine had a good take on this last week.