Netflix holds strong amidst market meltdown
With more people being asked to work from home and various states in India virtually being locked down to contain the virus spread, media-services provider and production company Netflix seems to benefit the most.
Will Coronavirus boost Netflix subscribers?
Netflix, the video streaming giant, with more than 167 million subscribers worldwide, generating a revenue of ~$25.9 billion is growing at a CAGR of 4.1%.
Analysts say, Netflix is best positioned to take advantage of the cocooning effect, as fear surrounding coronavirus pandemic is rising steeply, and consumers are foregoing travel plans, avoiding social gatherings and self-quarantining themselves.
Netflix is anticipating to add 510,000 subscribers in US-Canada and 7 million subscribers internationally bringing the 1Q2020 subscribers to 7.5 million, way higher than the forecast.
We have also experienced this with a viral WhatsApp link of a 2011 Steven Soderbergh’s movie “Contagion” depicting how an unknown virus spread across the world affected a billion people. “Contagion” downloads spiked from a couple of hundreds to approximately 20,000 times, every time a major news regarding the virus came out. Although “Contagion“ was reportedly available on Netflix and other in other countries recently, it’s disappeared from many. As a result, people have to turn to Amazon and iTunes for rental options or downloading.
Netflix (NASDAQ: NFLX) stock held up pretty well amidst the market mayhem in the past month correcting ~14.16% vs S&P 500 which corrected ~31.9%. Consumer downloads increased drastically, especially in Italy and Spain, the worst affected countries after China. Data shows that downloads in Italy and Spain increased by 100% and 50% respectively after 1st February.
On the contrary, many analysts assume, that this outbreak might hurt Netflix as:
1. Netflix charges a fixed amount per month from its subscribers, hence it does not benefit them economically and they do not have ad revenue as an income source.
2. Many companies have stopped pay checks amidst the economic slowdown and Netflix being a luxury service, consumers might let go off for a while.
3. Netflix might spend ~$17.3 billion in 2020, which might lead to a steeper negative FCF. Moreover, Netflix is a BB- rated and cost of capital usually rises for junk bonds during uncertain times.
Time Will Tell
Well, we are all seeing the effect of Coronavirus on the economy – the markets are plummeting, governments are decreasing interest rates and many countries are being locked down, it is natural for consumers to stay put, work from home and socially distant themselves, meanwhile companies that cater to such state of affairs, reap the benefits.