In this important episode of Coronavirus S.O.S. we’re talking tourism, the Italian lockdown, ExxonMobil’s dividend and Robinhood.

For another take on what this virus means for politics and the economy check out our in-house economist, Chris Wood’s take. 

 

Robinhood

Millennials signed up with Robinhood for the free trades and the attractive look and feel, but now they realize the most important differentiator may simply be reliability.

Will millennials’ favourite trading platform Robinhood survive two system-wide outages on two of the biggest trading days of 2020?

Millennials signed up with Robinhood for the free trades and the attractive look and feel, but now they realize the most important differentiator may simply be reliability.

Old money competitors like Charles Schwab now also offer free trades and were rock solid last week while Robinhood sputtered.

Robinhood’s future is at risk if they can’t win back user trust and keep the same millennials who drove their growth from fleeing to superior rival platforms.

 

How Important are Travel and Tourism to the Global Economy?

Travel and tourism play a bigger part than you might think in driving the global economy.

As quarantine zones expand and major social events are canceled, could this sector alone push the global economy into a full-on recession?

The answer is yes.

For example, in Italy where tourism is 6% of GDP, if tourist activity falls 50% in 2020, Italy’s GDP growth would go from an expected 0.20% to a contraction of 2%.

Even in the U.S. where tourism is only 2.7% of GDP, a 50% fall would cut growth in half for this year.

And we haven’t even mentioned the knock-on effects to other sectors of the economy if tourism employment goes off a cliff.

Is Exxon Mobil’s Dividend at Risk?

Oil is also top of mind, we looked into Exxon Mobil’s dividend to see if the most celebrated oil producer can still support $15 billion of payouts while oil prices are crashing below $40/bbl.

Exxon hasn’t been able to afford its dividend for a few years already.

The company is issuing debt to afford the dividend, which is not a sustainable model, but will work while the debt balance is as low as it is today (only 1x cashflow).

While we don’t think the dividend is going anywhere anytime soon, Exxon’s debt levels will continue to rise, making it a riskier and potentially less valuable stock. 

ExxonMobil Free Cashflow vs Dividend Payments

Free Cashflow = Cashflow (-) maintenance capital spending to keep production flat

Exxon’s story is not unique and is playing out among all the oil “majors”.

Debt to EBITDA, a proxy for cashflow, has been going up for years as shale drilling held the global price of oil around $50/bbl.

A decent dividend yield is all these companies have left to sell investors, so they will borrow to make their payments and we will continue to see this sector become more indebted and riskier.

The golden age of the oil market is long gone.

Debt Levels Going up for all Large Oil Companies

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Grizzle hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.