The depression will be deep and broad. Yes, even the beloved Enterprise Software sector will be impacted despite investors who believe the sector is impervious to negative inputs.
The bullet points below are not hypothetical puts to the economy. They are real and are happening now.
- Banks are tightening credit. Commercial bankers are tightening now. This is a net negative and will have a spillover effect to the broad economy.
- Enterprise Software companies will feel pain as their SMB customers cuts heads and shrink budgets. This is already happening. Some companies admitted as much in not so forthcoming terms on the March quarter earnings calls.
- Not all software is “mission critical”. Companies will shrink their software spend if they have to. Many software companies have an inflated view as to the ROI their software delivers to customers. They are sure to be disappointed, especially if they did not live through the 2008 recession.
- Business travel isn’t snapping back. That’s just the reality. Travel is down 90%+ year-over-year. It won’t recover next quarter. We are sure to see an airline or two file for bankruptcy. Our work suggests American Airlines will be insolvent within a year. This is bad news for executing large and/or complex sales and M&A transactions.
- Unemployment is not snapping back either. Riddle me this – where do laid off employees go when their company files for bankruptcy or has a 50% headcount reduction? Where do they go to find immediate employment and be productive? Large unemployment numbers are a wet blanket on the economy that bleeds across multiple sectors and supply chains.
- “Visibility” won’t magically return overnight. 99% of the Technology earnings calls I listened to in April and May could be described as management teams having significantly less visibility. Full “visibility” will not return on July 1st. The real world does not operate like a Swiss watch.
- States need to reopen. California Governor Newsom is more concerned with his hair than his state. California sported a $54 Billion deficit as of last week. States simply can not run deficits in perpetuity with the expectation of a bailout. Taxpayers are growing weary.