Covid-19 pandemic: the big unknown. The technology sector

What if coronavirus is the beginning of a new age for tech companies? With self-isolation and travel restrictions, the shutters have gone down on many types of business – but for some companies in the tech sector, COVID-19 has provided a chance to really prove the benefits of their technologies. Marius Ribokas from Invest Lithuania: Information Technology team takes a closer look at the prospects for the tech sector after the crisis. Read his text below.

—

There is huge amount of information covering different aspects of current pandemic. As it is part of my daily job crunching through all those articles and reports – I would like to share some of my insights on the effects to the technology companies based on the newest available information.

Davos 2020 – the World Economic Forum (WEF) took place at the end of January. This was right after the World Health Organization had released its Novel Coronavirus situation report that listed the few countries that had confirmed cases at that time. The US also confirmed its first case the same day. The WEF brings together several thousand business and political leaders each year to predict and tackle wider global issues. Among the topics covered this year were climate change, long-term debt, “technology war”, empowering people with skills over the next decade, resolving global conflicts(1) but there was nothing on the official schedule concerning the possible outcomes of a pandemic. This clearly shows how unprepared the world was and how unexpected the covid-19 outbreak was – especially in terms of the effects it is having on the global economy.

What is to be expected?

Currently, the biggest issue facing the market is the uncertainty around how long the pandemic is going to last. The duration of the pandemic will no doubt impact how long it will take the economy to recover. Stock markets are fluctuating wildly trying to determine the new value of listed companies. Central banks around the world may deviate when it comes to their forecasts, but there is one point they all agree on – the world’s economy will shrink due to covid-19. The recently released McKinsey report suggests a few different scenarios that might emerge due to the pandemic, and states that “Covid-19 U.S. impact could exceed anything since the end of  WWII”.

What are the effects on tech companies?

Even though companies in the technology sector, are in the main, the best suited of all businesses to operating in quarantine conditions, it is during the aftermath of the quarantine that most of the problems will appear. That is why the majority of companies have switched from growth to survival modes. It cannot be compared directly, but the evolvement of the financial crisis of 2007–08 provides some knowledge of what to expect in the near future. It is clear that having enough cash to survive the next 6-12 months is essential now.

The bright side:

1. The majority of companies are facing the current crisis in good shape – many of them have raised substantial amounts of money or managed to build reserves during the last decade.
2. Tech companies with a strong business model are still successfully raising money and securing their future. Airbnb, Onfido, Airwallex and Stripe – just to name a few – have each raised $100M or more in the last month.
3. New business opportunities – as we are being forced to drastically rearrange our daily routines, technologies that can facilitate shifting more of our life online are naturally booming.

Getting funding:

1. The valuation of the tech companies in need of emergency funding will drop significantly. Scooter rental startup Lime is seeking emergency funds from new investors and has had its valuation slashed by 80% ($2.4B to $400M) in the process (3). Another example – after its latest financial operations, Airbnb is now valued at $18B, which is almost half of what the company was worth in 2017 (4).
2. Postponed Initial public offerings (IPOs) or direct stock listings – for many tech companies this is still the Holy Grail (or a natural choice) after they have exhausted their initial series of investments. Companies like Airbnb and Github had officially announced their plans to become public companies in 2020, but it now seems very unlikely that they will proceed with this.

The world will open even further

There is one important point that cannot be overlooked when examining the dynamics inside companies. What is clear is that the tech world is never going to be the same. Although employees in the majority of tech companies previously had the ability to perform some of their work remotely, by the end of the quarantine, companies will have proved to themselves that they are able to execute all of their operations remotely – without the need of an office. It is too drastic to say that there will be no more need for offices – I am sure the companies will keep at least some of it, but once companies have had the chance to perfect their onboarding procedures, you will see dramatic changes in the employee market – with the result that instead of hiring locally for talent, more and more technology companies will be able to hire globally, tapping into the best talent out there. And this will truly make a world of difference.

Want to talk business? Our team is ready. Challenge us: https://bit.ly/2RZdtKb

Sources:

• https://www.euronews.com/2020/01/16/davos-2020-everything-you-need-to-know-about-the-world-economic-forum
• https://www.forbes.com/sites/alexkonrad/2019/09/17/gitlab-doubles-valuation-to-nearly-3-billion/#6ce86bed1794
• https://www.theinformation.com/articles/limes-valuation-may-fall-80-in-emergency-fundraising
• https://www.cnbc.com/2020/04/14/airbnb-raises-another-1-billion-in-debt.html