July 15, 2020 / 8:55 PM / 20 days ago

Breakingviews - Corona Capital: Expense accounts, Zoom’s new box

NEW YORK/LONDON/HONG KONG (Reuters Breakingviews) - Corona Capital is a daily column updated throughout the day by Breakingviews columnists around the world with short, sharp pandemic-related insights.

A 3D printed Zoom logo is placed between small toy people figures and a keyboard in this illustration taken April 12, 2020. REUTERS/Dado Ruvic

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- Wall Street expenses

- Zoom for Home

THERE GOES MONEYBAGS. Schmoozing clients around the world is costly – or at least, it used to be. Goldman Sachs revealed on Wednesday in its quarterly earnings that while its operating expenses had increased sharply, its “market development” costs – which include travel and entertainment – had halved year-on-year.

Pandemics don’t lend themselves to jetting around for client lunches. Other banks, like Citigroup and JPMorgan, have also recorded falls in marketing-like expenses. It also sheds light on how tough post-pandemic life will get for the travel industry if high-spending businesses emerge sustainably more frugal. Delta Air Lines Chief Executive Ed Bastian warned this week that business travel may never come back to 2019’s levels.

One company’s loss is another’s gain, at least. Goldman’s market development expenses last year added up to $739 million, or 7% of the Wall Street firm’s pre-tax profit. Even if bankers can’t dine out on that, maybe the firm’s investors can instead. (By John Foley)

CHEAPER THAN BUSINESS CLASS. Zoom Video Communications’ answer to thinking outside the box is literally a box. The $73 billion software company, whose video chat service has become a pandemic must-have, unveiled on Wednesday Zoom for Home, a 27-inch device with built-in high-resolution cameras and microphones. Internet companies haven’t always done well straying into hardware – for every Amazon Echo there’s a Facebook Portal – but Zoom’s experiment could work.

The $599 price tag seems ridiculously high, especially because videoconferencing and virtual happy hours are growing tedious. But employees like the flexibility accrued during the pandemic. More than 80% of respondents in an IBM survey said they want to continue working from home at least some of the time, even when offices open, the Zoom statement said. Zoom probably figures businesses will pick up the tab to keep employees connected. Besides, the item is less expensive than a year’s worth of hotel bills and airplane tickets. (By Jennifer Saba)

MODERNA LOVE. Shares in the $29 billion biotechnology outfit surged higher on Wednesday morning after the publication of positive-sounding interim results from tests of its coronavirus vaccine candidate. The company is one of the beneficiaries of investors craving an end to the pandemic: Moderna’s stock was already up more than 280% this year.

The biotech is also joining the Nasdaq 100 Index, the eponymous compiler said on Monday. The index has blown away all significant global benchmarks in 2020, gaining more than 20% when most others are down on the year thanks to the fallout from Covid-19. Other constituents include $280 billion Tesla, up nearly as much as Moderna. Both stocks are infused with hype and hope. As is also the case for the electric-car maker, reality for Moderna may not be so rosy. (By Richard Beales)

TOPSY-TURVY. The coronavirus is turning British politics upside down, at least when it comes to raising revenue. Shadow finance minister Anneliese Dodds on Wednesday said her left-leaning Labour party wouldn’t necessarily support a capital gains tax increase, the Independent reported. Instead, it is her Conservative opposite number, Chancellor Rishi Sunak, who has floated the idea of hiking the levy on investment profits. Normally it’s the Tories who steer clear of taxing the rich.

The disconnect highlights the dilemma for politicians in countries running up massive budget deficits. UK borrowing is set to hit 350 billion pounds this year. The debt has to be repaid eventually but doing so too quickly risks choking off a fragile economic recovery by damaging consumer spending. In this sense, capital gains tax, rather than VAT or income tax, is the lower hanging fruit. (By Dasha Afanasieva)

POOR TOM. Not many sports teams get listed as a contributing factor in a Chapter 11 bankruptcy. But the Paper Store – a specialty gift chain in the U.S. Northeast – said on Tuesday that it got off to a bad financial start in 2020 because sales of sports items were down compared to 2019. And that’s due to Tom Brady’s New England Patriots getting knocked out of the National Football League playoffs. The legendary quarterback’s subsequent departure for Tampa Bay probably didn’t help.

Covid-19 is obviously the primary cause of the Paper Store bankruptcy – the company has around $40 million in third-party debt and almost $4 million in past due rent. But the pandemic and sports-merchandise sales are intertwined. Fans may shell out for team-branded face masks. But no one knows how many people, if any, will be able to attend games. If more purveyors of sports products struggle, more teams may find themselves namechecked by bankruptcy lawyers. (By Anna Szymanski)

IN THE TRENCHES. Burberry is learning the limits of a Chinese recovery. Sales in Mainland China grew by around 15% in the quarter to June 27. Much of that may have been substitution: Chinese shoppers were unable to travel and so spent at home instead. That contributed to a 45% year-on-year fall in sales in the 13-week period. The Asia-Pacific region declined 10%.

Even though the iconic trench coat maker said things were looking up in June, it still expects sales to decline as much as 20% in the current quarter. The good news for investors is that the group is reducing office space and cutting jobs. But with Burberry finery piling up in warehouses and more having to be sold at a reduced price, protecting the brand will also be crucial. Chief Executive Marco Gobbetti can’t afford for his customers to get used to paying less. (By Dasha Afanasieva)

ROLL CREDITS. Wanda Film, China’s largest cinema operator, is expecting a loss of up to 1.6 billion yuan ($228 million) for the first half of 2020, after the pandemic shut theatres early in the year. New releases have been delayed and production has been halted, so it may take a while to get viewers back into seats. The longer the shutdown lasts, the more audiences may migrate to home streaming solutions. That’s bad news for rivals, and for Hollywood studios aiming scripts at the Chinese market.

Boss Wang Jianlin could raise cash by selling assets. Unfortunately, U.S.-based AMC Entertainment, which the Dalian Wanda Group purchased in 2012, is hovering above bankruptcy, the Wall Street Journal reported. Wanda Film shares are rallying in Shenzhen on hopes of imminent theatre reopening, but a fresh wave of contagion is underway next door in Hong Kong. This season could end in tragedy. (By Jamie Lo)

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