More Room For Markets To Drift Down. Software As A Safe Haven.

More Room For Markets To Drift Down. Software As A Safe Haven.

Today’s bloodletting is the result of a spate of negative news over the weekend concerning escalating COVID-19 cases, restaurant closures, limits on large groups, school closures, dramatic action by the Fed and more. There is yet another wave of bad news looming that is likely to arrive in the next couple of weeks.

The next wave of bad news is likely to include:

  • Escalating figures concerning the number of reported COVID-19 cases. 100% probability that the number of reported cases will spike over the next several weeks.
  • A potentially overwhelmed healthcare system. 80% probability that healthcare systems in certain metropolitan areas become overwhelmed given the number of school closures and healthcare processionals that are home with their children rather than at work.
  • Business failures. 100% probability that a number of mom & pop businesses – local restaurants for example – will fail. These stories will run on a local news loop and make national news in some cases causing further market uncertainty. In addition, there is the risk that businesses that are heavily levered to travel & tourism may fail including some airlines, hotels and restaurant operators.
  • Credit crunch. Thus far the banks are lending as companies draw down their credit lines. 50% probability that certain banks become stressed to the point where they no longer lend – at least in a meaningful way.
  • Software as a safe haven. This was true in 2008 and will be true again during the COVID-19 fallout. That’s not to say that Software companies (we include application software and infrastructure software companies in our “Software” group), are immune to the effects of COVID-19. We believe that 100% of Software companies will feel a negative impact from COVID-19 on sales cycles, reported bookings and revenue to varying degrees. However, Software companies by definition are asset-lite and can be operated to throw off 30-40% cash flow margins – especially those with a high degree of recurring revenue and 90%-plus customer renewal rates. Software companies – like Monty Python’s Black Knight – are difficult to kill.


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