Barron\'s - April 6 2020

30 BARRON’S April 6, 2020

TECH TRADER

There’s one area of declining activity on

networks—Verizon says cell-to-cell handoffs

are down 29%.

Everyone Is Worried

About the Internet.

So Far, It’s Been Fine.

T

he Internet is doing

just fine.

With everyone

stuck working and

studying from

home, Americans

have become sensi-

tive to any news about internet slow-

downs. We’re all using more band-

width for video conferences and

streaming, the only things maintain-

ing any sense of normalcy in our lives.

So, internet anxiety is understandable.

Last month, European Union Com-

missioner Thierry Breton triggered a

round of hand-wringing when he

tweeted that we should all stream

video in lower-quality standard defini-

tion, rather than high-def, in order to

“secure Internet access for all.” In re-

sponse, Apple (ticker: AAPL), Ama-

zon.com (AMZN), Netflix (NFLX),

and Google’s YouTube all announced

plans to reduce their video streaming

quality in Europe. And, in fact, there is

some evidence that European broad-

band speeds have slowed, with large

numbers of people working from

home.

The good news is that U.S. networks

are handling the traffic spikes without

any major hiccups. In a call this past

week with reporters, Comcast

(CMCSA), the largest U.S. internet ser-

vice provider, said that its network is

working well, with tests done 700,000

times a day through customer modems

showing average speeds running 110%

to 115% of contracted rates. Overall

peak traffic is up 32% on the network,

with some areas up 60%, in particular

around Seattle and the San Francisco

Bay area, where lockdowns were put in

place before they were in most of the

rest of the country. In both Seattle and

San Francisco, peak traffic volumes are

plateauing, suggesting a new normal.

Almost every online activity has

spiked. Comcast says video conferenc-

ing and voice over IP traffic is up

212%. Gaming downloads have

jumped by 50% to 80%, with some

fluctuations based on new game re-

leases. Streaming video is up 38%,

Comcast said, while linear video con-

sumption is up by four hours a week

on average per household, to 64

hours. Video on demand is up 25%,

year over year.

Tony Werner, head of technology

and product at Comcast Cable, says it

has a long-term strategy of adding

network capacity 12 to 18 months

ahead of expected peaks. He says that

approach has given Comcast head-

room to smoothly absorb the added

traffic. The company hasn’t requested

that video providers or anyone else

limit their traffic.

AT&T (T), the No. 2 U.S. internet

service provider, likewise asserts that

its network is performing “very well”

during the pandemic. This past

Wednesday, it said, core traffic, in-

cluding business, home broadband,

and wireless, was up 18% from the

same day last month. Wireless voice

minutes were up 41%, versus the aver-

age Wednesday; consumer home voice

minutes rose 57%, and WiFi calling

wasup105%.

Over the past three weeks, the com-

pany has seen new usage patterns on

its mobile network, with voice calls up

33% and instant messaging up 63%,

while web browsing is down 5% and

email is off 18%.

Verizon Communications (VZ)

also says its network is handling the

traffic well. One telling stat: The car-

rier says that mobile handoffs, the

shifting of sessions from one cell site

to another as users move around, is

down 53% in the New York metro

area, and 29% nationally; no one is

going anywhere.

By Eric J. Savitz

O

ne takeaway from this

strange period is that we’re

seeing clear validation in

moving corporate comput-

ing to the cloud. The Barron’s staff

works remotely thanks to a wide

range of apps, from Slack Technolo-

gies (WORK), Okta (OKTA), and Al-

phabet’ s (GOOGL) Google. But enter-

prise-cloud software companies won’t

be immune to a downturn, and we’ll

get vivid reminders of their vulnera-

bilities as first-quarter earnings start

arriving in the next few weeks.

Canaccord Genuity software analyst

Richard Davis thinks first-quarter re-

sults will be fine—most cloud-based

software companies have recurring

business models, and the economic

plunge didn’t begin until March. But he

also thinks cloud companies will be

withdrawing their full-year guidance—

if they haven’t already—and that there

could be a plunge in billings, as new

business activity grinds to a halt.

“Investors expect the content of the

next few earnings calls to be some form

of ‘things were good until March,’” he

wrote this past week. “A few minutes

later, most companies will announce

they have withdrawn guidance.”

Davis expects investors to focus on a

likely billings collapse, which will

bring down future revenue growth for

a group of stocks already trading at

lofty revenue multiples. He says some

companies could miss June-quarter

bookings estimates by 90%.

Davis adds that once we get past an

ugly June quarter, the second half of the

year could see a wave of consolidation.

Large companies such as Amazon, Mi-

crosoft (MSFT), Alphabet, Oracle

(ORCL), Adobe (ADBE), and Sales-

force.com (CRM) may start shopping

for bargains. Potential targets could

include Service Now (NOW), Atlas-

sian (TEAM), Slack, Dropbox (DBX),

Avalara (AVLR), Twilio (TWLO),

Okta, Elastic (ESTC), HubSpot

(HUBS), Zendesk (ZEN), Smartsheet

(SMAR), and Sprout Social (SPT).

“Strategic buyers could step up as

soon as late summer once we deter-

mine the depth of this economic hole,”

David wrote in a research note this

past week. “These firms will buy the

quality companies at a discount.”B Getty Images

Comcast says video streaming is up 38%.

Gaming downloads have spiked 50% to

80%. And video chats and internet phone

calls are up 212%.