The creep of coronavirus in the U.S and abroad this week has given new primacy to the concept of stay-at-home stocks as media investors — like filmmakers, studio executives and theater owners — attempt to weigh whether the world outside China is on the brink of a massive upheaval, or not. One analyst thinks either way, Netflix looks like winner.
“With Coronavirus fears pushing consumers away from travel and out-of-home entertainment, Netflix could be a near-term beneficiary of this temporarily altered behavior,” wrote Piper Sandler analyst Michael Olson in a report Thursday. He said his analysis of subscriber trends points to higher-than-projected growth in the current first quarter both in the U.S. and Canada and internationally. Specifically, he sees North American subs growing 3.8% year-over-year versus a Wall Street consensus of only 1.6%. And he sees international growth of 32.5%, higher than the 29.9% anticipated.
“Despite the launch of new streaming services, Netflix continues to capture a significant portion of traditional content consumption dollars as that spend migrates to streaming,” he said. Olson has an “overweight” recommendation on the stock.
His comments come as the rate of new infections in China is slowing. Starbucks are open. Apple said its supply chains there are mostly good to go. “Now all of a sudden we’ll be all excited about Chinese cinema,” one Wall Street entertainment analyst said.
But Los Angeles has declared a state of emergency, schools are closed from Westchester, NY to France, Germany, the entire country of Italy and for 2 million students in India. There have been 11 deaths and 108 confirmed cases in 13 states in the U.S. In Europe, there are more than 5,000 infections. When a February 24 article in The Atlantic quoted a Harvard epidemiologist’s forecast that 40%-70% of people around the world will be infected this year, it made news, but seemed like a reach – then.
“If you don’t slow the growth, it’s like popcorn popping all over the world,” said Neil Begley, SVP and entertainment analyst at Moody’s Investors Services.
Netflix shares have been hit in the recent stock market insanity but less than other showbiz stocks. It was one of the few in the group up briefly this morning before the Dow took a massive tumble, closing down 966 points, or 3.58%.
Netflix lost 2.87%. That’s way better than others: Live Nation and National Cinemedia each lost more than 7% as concert venues are not beloved by investors right now, and they’re also starting to get spooked about movie theaters. But Dish and Viacom were also down more than 7%. Comcast fell almost 6%. AMC Entertainment plunged 15.6%.
As Bill Smead, chief investment officer of Smead Capital Management, said last week, “The market likes Netflix under the assumption that hibernation comes at a premium.” Netflix is pure-play hibernation.
Jason Helfstein of Oppenheimer has an “outperform” ranking on Netflix given the amount of OTT viewing. He also likes Roku as a way to play a stay-at-home streaming bump. And he imagines that social media platforms like Facebook, Twitter and Google — and their stocks — should also benefit “when people are nervous or bored and looking to be informed.”
Snap, up 1.74%, was one of the only media/tech names in positive territory today. CEO Evan Spiegel on Wednesday said the company is protected in part because its users are all young, between 13 and 34, so less likely to be impacted. He also said he thinks the digital/media sector better positioned than others. It’s true — just look at airlines and cruise lines. He said, however, he was concerned about the impact on advertisers.
It’s true that much of media and social media depends on advertising. Moody’s Begley, who was ahead of the curve in analyzing the coronavirus impact in a report January 29, said advertising will depend on how anxious consumers are about 1) going out, and 2) spending money if they’re furloughed from their jobs, for instance, or fear they might be.
Autos, to take one category, are nearly a quarter of national advertising. If automakers “don’t think people will be going out to buy cars in the next four-to-six weeks,” they might hold back.
Begley said hopefully whatever happens “will be relatively short-lived and everyone will get back on their feet, as long as employment and housing and all those base fundamentals hold. So instead of being a financial crisis setting it will be more like a 9-11 setting” – sharp but with a relatively quick recovery.