The coronavirus begins to impact US tech earnings

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

Today we’re starting on a somber topic, so I’ll hold off on our usual jokes and attempts at puns. The impact of the coronavirus known as COVID-19 is starting to show up in U.S.-based technology earnings, and it’s something we need to discuss. We’ll get back to SaaS multiples, the IPO market, and riffing on startups later today, but first, some bad news from the public markets.

Let’s examine the latest from Microsoft, Nutanix, and Booking Holdings (parent company of, OpenTable, and Kayak. Afterwards, we’ll talk about what types of companies might be impacted, given what we’ve learned. And finally, we’ll link this all back to startups, younger technology shops sensitive to changes in market sentiment and repricing due to public market gyrations.

Results, Warnings

Let’s start with Microsoft as they’re the biggest of our three firms. If you only have time for one, this is the one to understand.


Microsoft is a company with three business units: Productivity and Business Processes (Office and the like), Intelligent Cloud (Azure and friends), and More Personal Computing (Windows and its associates). It’s the third category that we care about this morning, with Microsoft saying the following:

On Jan. 29, as part of our second quarter of fiscal year 2020 earnings call, we issued quarterly revenue guidance for our More Personal Computing segment between $10.75 and $11.15 billion, which included a wider than usual range to reflect uncertainty related to the public health situation in China. Although we see strong Windows demand in line with our expectations, the supply chain is returning to normal operations at a slower pace than anticipated at the time of our Q2 earnings call. As a result, for the third quarter of fiscal year 2020, we do not expect to meet our More Personal Computing segment guidance as Windows OEM and Surface are more negatively impacted than previously anticipated. All other components of our Q3 guidance remain unchanged.

Microsoft is saying that it will miss the bottom-end of its widened range due to the impact of supply-chain issues stemming from the coronavirus. The rest of the company’s businesses are fine, and demand for Windows, Microsoft says, is safe. But with Surface and Xbox (two hardware projects) there appears to be disruption on the horizon.

In pre-market trading, shares of Microsoft are off 3.5%. Shares of Microsoft are now off 14% from their recently-set all-time record highs, including the impact of pre-market trading.


If Microsoft appears to have taken a modest correction from investors over its expected revenue miss, Nutanix, in contrast, was upbraided.

Shares of the hyper-converged infrastructure shop are off over 20% in pre-market trading today after the company reported lower-than-anticipated forward guidance relating to its ability to drive revenue:

Nutanix’s TCV [total contract value] guidance for both the third quarter of fiscal 2020 and the full year of fiscal 2020 is impacted by the much faster than expected transition to subscription coupled with a more cautious view on business activities in the greater [Asia-Pacific] region due to the anticipated impact of the coronavirus.

As MarketWatch noted in covering the company’s results, the company’s expected TCV from “software and support” of $300 million to $320 million in the current quarter was the analyst expectation of $352 million. The company’s implied slowing growth, coming in the midst of a hardware-to-SaaS transition, was unpopular with investors.

Nutanix does note that its low forecast is due to “anticipated impact of the coronavirus,” which could be a good sign. Perhaps things don’t look too bad quite yet?

Booking Holdings

Booking Holdings beat both revenue and profit expectations yesterday when it reported earnings. However, with six mentions of the coronavirus in its earnings, the holding company for had a few things to say. Here they are in order.

Number one:

“We were pleased with our fourth quarter and full-year 2019 results. While the outlook for global travel in the near term is uncertain due to the coronavirus, we will manage the business appropriately to enhance long-term value for our stakeholders” said Glenn Fogel, Chief Executive Officer of Booking Holdings.

Numbers two through five:

The coronavirus has had a significant and negative impact across our business during the 1st quarter. It is not possible to predict where, and to what degree, outbreaks of the coronavirus will disrupt travel patterns. The guidance for the 1st quarter is based on the trends observed in the quarter so far and considers the continued negative impact of the coronavirus. The guidance ranges for the 1st quarter are wider than typically provided given the high level of uncertainty in forecasting the coronavirus and its associated impact on the Company and the travel industry generally. While it is extremely difficult to forecast results, these guidance ranges represent the Company’s current estimates of 1st quarter results based on currently available data.

And in its risk factors section, the company lists COVID-19 as one of those that it is tracking:

Adverse changes in general market conditions for travel services, including the effects of macroeconomic conditions, terrorist attacks, natural disasters, health concerns (including the effects on travel of the coronavirus), civil or political unrest or other events outside our control.

So what?

Anything related to travel, China-built hardware, or selling into countries that are undergoing coronavirus-led quarantines appear to be at risk. That statement reads reductively, but the above notes make your gut instinct more fact-based than it was before, so it’s useful to state the obvious.

Startups with revenue exposure to similar lines of business may also see disruption. This is doubly true for China-based startups that deal with transport. What, say, has the impact of China’s partial shuttering had on Didi and Meituan? You get the idea. Domestically things are still pretty ok, but sentiment could change if more hard-to-explain cases pop up; if fear rises, risk-tolerance will fall, and the economy will slow.

More immediately, the stock market is set to fall by hundreds of points yet again. For startups looking to raise, late 2019 is starting to look better and better and 2020 worse and worse.