In an environment where cash is king, cash-rich tech companies could gain ground against -- and in some cases, acquire -- more financially-constrained rivals that are seeing meaningful cash burn.
The U.S. restaurant delivery market, a field that was awash in red ink and widely expected to see consolidation even prior to the COVID-19 outbreak, could prove to be a good case in point. With the funding environment for money-losing, late-stage startups now much tougher, Uber (UBER) and GrubHub (GRUB) now appear to be in stronger strategic positions relative to privately-owned rivals DoorDash and Postmates.
During a March 19 business update call, Uber disclosed that it had about $10 billion in cash at the end of February, and forecast that even if its ride-sharing business was down 80% for the rest of 2020, it would exit the year with $4 billion in cash, along with access to a $2 billion credit revolver. In a scenario that involves the ride-sharing business bottoming in Q2, Uber expects to end the year with about $6 billion in cash.
GrubHub ended 2019 with over $400 million in cash, and (with the help of its takeout-ordering business) was forecasting positive 2020 adjusted EBITDA before the COVID-19 pandemic took hold.
By contrast, DoorDash and Postmates were both losing money going into 2020. DoorDash, which has confidentially filed for an IPO that now looks unlikely to happen in the near-term, was reported in December to be projecting a $450 million 2019 operating loss. Postmates, easily the smallest of the four main U.S. restaurant delivery players, carried out layoffs last fall in an attempt to strengthen its bottom line.
E-commerce is another area where a deep-pocketed player -- namely, Amazon.com (AMZN) -- is likely to strengthen its hand over the next few months. During a time in which weaker consumer spending is set to weigh on the sales of many of the direct-to-consumer startups that avoid selling on Amazon and rely heavily on Facebook, Instagram and Google ads to promote themselves, Amazon can afford to hire another 100,000 workers to help deal with swelling orders for groceries and other consumer staples.
Enterprise software, meanwhile, is an area where larger players might not necessarily gain a lot of share against smaller players in the short-term. Not when salespeople and systems integrators in general are unable to physically meet potential clients.
However, it's also an area where it's pretty normal for smaller, growth-stage firms to be burning cash. And in an environment such as this one, many of these growth-stage companies could both see their cash burn worsen and new funding prove more difficult to come by (or at least come with much less favorable deal terms than would have been the case a short while ago).As a result, should a bigger, cash-rich, cash-flow positive peer such as Microsoft ( MSFT) or Salesforce.com ( CRM) express buyout interest, some of these companies could be more willing to listen than they would have been in, say, January.