Internet firms not immune to economic impact from Covid-19

March 30, 2020 10:19
Facebook has reported higher user activity on its platforms amid the Covid-19 pandemic but it is a different picture when it comes to the advertising income. Photo: Reuters

Internet and technology stocks have been relatively resilient amid the recent market sell-offs triggered by the coronavirus outbreak.

The common rationale is that people are using more digital services like online shopping and food delivery apps as they are stuck at home. They also spend more time on social media and streaming platforms like Facebook, Netflix and YouTube.

However, increased activity does not always mean improved bottom line.

Facebook said last Tuesday that usage of its platform has soared over the past month in countries hit hard by the virus. In Italy for example, local people were spending 70 percent more time online. Visits on Instagram and Facebook Live doubled, and the time spent on Group Calling even jumped 10-fold.

Nonetheless, we should bear in mind that all these services are free. Increased usage is good only if it can generate advertising income, which makes up about 98 percent of Facebook’s revenue.

Following the epidemic, Facebook's business has been adversely affected as advertisers have been spending less. Fashion, luxury, restaurants, tourism and automobile industries are having a tough time. They are forced to halt or cut back operations. It’s a natural move for them to reduce advertising budgets and save more cash.

That said, some tech firms would indeed benefit from the current global crisis.

Amazon, Alibaba, Meituan, JD.com and Pinduoduo are seeing a spike in online orders. Tencent might see some decline in its advertising unit, but consumers might spend more on online gaming.

Still, if the virus does not come under control quick enough, the global economy will suffer badly. As more people might lose their jobs, they would cut back overall spending, including on online shopping and entertainment.

This article appeared in the Hong Kong Economic Journal on March 27

Translation by Julie Zhu

[Chinese version 中文版]

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RC

Hong Kong Economic Journal columnist