The corporate response to the pandemic has almost universally been fear. Companies everywhere were quick to batten down the hatches. Dividends and buybacks were curtailed, investment halted, day-to-day spending reined in, balance sheets shored up and government support hoovered up. There was a stampede for the exit.
It was obviously the right move. Chief executives couldn’t afford to hesitate in the face of what was unfolding. They had to act with lightning speed. Indecision could have been the difference between survival and extinction. Extreme caution was the only choice.
Yet, there is a fine line between prudence and panic. In yanking up the drawbridge, the danger is that it remains steadfastly shut, exacerbating the fallout and prolonging the downturn. It is easy to see Covid-19 as a total disaster but couldn’t it also be an opportunity? It is no exaggeration to say that management currently have carte blanche to take whatever action necessary to overhaul their flailing businesses.
There is already evidence of some firms using the cover of Covid to take the axe to jobs. No corner of the workforce has been spared, with more than 55,000 cuts announced at major employers in June, and a further 30,000 in July. Aviation, retail and hospitality have borne the brunt of layoffs. But bosses need to be braver than that. Retrenchment is the easy option. Anyone can cut costs. It’s those that choose this moment to get on the front foot by embracing technology, new ways of working, stepping up investment, or even making acquisitions that will be primed to take advantage of the recovery.
Not even a global health emergency has slowed the march of Silicon Valley’s big beasts. Facebook has taken a $5.7bn (£4.5bn) stake in Jio Platforms, the internet operation of Indian billionaire Mukesh Ambani, and Amazon has just placed a $1.2bn bet on self-driving cars with a takeover of Californian start-up Zoox – a precursor, it is thought, to building a fleet of autonomous taxis.
Here, serial entrepreneur Hugh Osmond is preparing to lead the way as he reportedly finalises plans for a so-called “blank cheque” cash shell.
According to Sky News, the vehicle will target a company that has been laid low by the virus. It is classic Osmond – contrarian and opportunistic – and he won’t be short of options. Elsewhere, Next is reportedly close to rescuing Victoria’s Secret out of administration, Boohoo snapped up Karen Millen, and the food tycoon Ranjit Boparan swooped on Carluccio’s, but otherwise UK plc has gone into hibernation.
The shape of the economic recovery is the subject of fierce debate. Will it be an L, a U, a V, a W, or square-rooted shaped? But the point about all of those is there will be a recovery at some stage, and yet there are companies out there valued as if we have sunk into a depression.
Shareholders will be patient. When there is nowhere else to put your money, and dividends and buybacks have suffered a brutal cull, fund managers have little choice but to wait out the rebound.
And it’s not as if there is a “business as usual” baseline against which chief executives can be measured or compared. Fortune favours the bold.
Netflix show far from over
Tech stocks are notoriously volatile but even by the fickle standards of Silicon Valley, the 12pc after-hours fall in the share price of Netflix after its latest earnings report was brutal.
Even more so when you consider that the video streaming service smashed forecasts with 10m new viewers, taking its paid subscriber base to within a clapperboard’s width of the 200m mark.
Yet in Silicon Valley it’s all about what’s to come. Guidance for the third quarter was disappointing: new subscribers of 2.5m compared with expectations of 5.1m.
With turbo-charged stocks like Netflix, the temptation is always to call the top but it is worth remembering the extent to which TV consumption is shifting. Yes, there’s more competition from Amazon, Apple and Disney but sceptics underestimate the decline of traditional TV, which is in danger of becoming obsolete in many households, including our own.
And Netflix comprehensively remains number one by virtue of first-mover advantage, the most original content, the strongest brand and the best technology.
The show isn’t over yet.