Breakingviews - Corona Capital: Dividends, Zoom, Big-screen blues
NEW YORK/LONDON (Reuters Breakingviews) - Corona Capital is a column updated throughout the day by Breakingviews columnists around the world with short, sharp pandemic-related insights.
- Dividend cuts
- Zoom outages
- Box office blues
DIVIDENDS PEELED. Companies slashed payouts in the second quarter by more than a fifth to $382 billion globally, according to Janus Henderson Investors. Continental Europe accounted for most of the dollars held back, with dividends down 45% from a year earlier, though the UK saw an even steeper percentage slide. Corporate bosses are understandably conserving cash amidst a profit-destroying pandemic.
North American divis held steady. But U.S. companies favor stock buybacks rather than dividends for a big chunk of what they hand over to shareholders – 60% in 2019 for S&P 500 Index companies. And share repurchases tanked by almost half among index members to around $90 billion in the second quarter, according to S&P Dow Jones Indices. With buybacks on hold, U.S. bank watchdogs have also applied less pressure to cut dividends than counterparts elsewhere. But for banks and other U.S. companies alike, Covid-19’s damage will endure – and more dividend cuts are likely. (By Richard Beales)
LIGHTS, CAMERA, HOLD ON. Zoom Video Communications’ big day turned into embarrassment on Monday, as tens of thousands of users had trouble logging in to the videoconferencing service on the first day of school for many American students. Downdetector.com, a site that tracks outages, said there were nearly 15,000 reports of interruptions.
Zoom is a pandemic winner, with rocketing user numbers and a market capitalization that has quadrupled to more than $80 billion since January. Such growth can be painful – Twitter’s frequent early outages, accompanied by error messages featuring a cartoon “fail whale,” became a running joke. In that case, users mostly forgave or forgot.
Back-to-school time was always likely to bring strains. And interruptions are forgivable when a service is non-essential or lacks duplicates. Increasingly, neither of those descriptions applies to Zoom. Interrupted classes and work meetings cause real losses. And rivals like Slack Technologies, Microsoft and a panoply of other firms are offering videoconferencing too. Zoom can’t afford to be unreliable. (By Robert Cyran)
NOT MUCH TO CROWE ABOUT. When the starting point is zero, anything looks better. The opening weekend of “Unhinged,” the new Russell Crowe road-rage flick, pulled in about $4 million in box office ticket sales in North America. It did better than the worst domestic opener earlier this year in January, “The Rhythm Section,” which notched almost $3 million according to Box Office Mojo. But it’s still not a good result. Even Walt Disney’s disappointing “Dumbo” remake made over 10 times more in its debut weekend last year.
The big difference is that now, only a quarter of U.S. cinemas are open, and at half capacity. The world’s largest chain AMC Entertainment welcomed moviegoers on Thursday for the first time since Covid-19 hit, celebrating its 100th anniversary by selling tickets at 1920 prices. The next big cinematic tentpole will be Warner Bros’ sci-fi thriller “Tenet” on Sept. 3. The ultra-violent “Unhinged” has set the bar low. (By Jennifer Saba)
TURNING THE PAGE. Textbook publisher Pearson has appointed Andy Bird as chief executive. Bird will take over in the middle of a painful turnaround. The coronavirus pandemic has dramatically accelerated the shift to digital textbooks: lockdowns have forced teachers and students to embrace online learning. Bird’s predecessor John Fallon blamed a string of profit warnings on the longer-term switch. The stark wake-up call from Covid-19 could finally force the 4.4 billion pound firm to up its game.
Bird, most recently chairman of Walt Disney International, is no stranger to going digital. Pearson said that he transformed the creator of Disney cartoons into a digital-first business, overhauling how it sells its products and their range, and revamping the insights the business had into consumer habits. A similar shake-up could help Pearson finally graduate from the remedial class. (By Dasha Afanasieva)
BUY NOW, PAIN LATER. Afterpay is rushing to the checkout. The $17 billion Australian company offering “buy now, pay later” instalment purchase plans to customers of fast-fashion retailers is expanding into Europe with the acquisition of Spanish rival Pagantis for about $57 million. On one level, it looks like a good time to buy: Afterpay stock has been trading at all-time highs as consumers, stuck at home because of lockdown restrictions and virus fears, have turned to online shopping.
The bite-sized acquisition allows some room for error, however. When fiscal stimulus measures end, consumer spending could fall dramatically and lead to a sharp rise in bad debt. This new type of credit has already attracted regulatory scrutiny. One of Afterpay’s biggest investors isn’t sticking around to see how things work out: Mitsubishi UFJ Financial has halved its stake to roughly 5%, according to exchange filings released last week. That’s sell now and maybe buy later. (By Karen Kwok)
STAYCATION DAMAGE. Turkey is the latest to reveal how much the pandemic is hurting countries that rely on tourism. The number of foreign visitors slumped nearly 86% in July from a year earlier and was down by more than three-quarters in the first seven months of the year, official data showed on Monday.
Others are also feeling the pain. For example, Greek tourism revenue fell to 64 million euros in June from 2.55 billion euros in the same month a year earlier, the central bank said last week. That caused Greece’s current account to swing into a deficit of 1.4 billion euros from a surplus of 805 million in June 2019. But Turkey’s plight is worse. The country is already running a large current account deficit and a bigger gap will compound pressure on its currency, which has hit record lows against the dollar. President Tayyip Erdogan will have his work cut out to reverse the tide. (By Swaha Pattanaik)
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