In these self-isolating times, Netflix has become for many a kind of security blanket. The financial figures show that Netflix could thrive in a time of global lockdown and widen its lead in the streaming wars.
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With stock markets in free fall, investors are looking for safer havens and ways to hedge losses with eyes on companies with the potential to emerge from the present crisis in better shape than their rivals.
Toilet paper and bike makers and Netflix come to mind. Trading at $320 a share, Netflix is down 'only' 17% over the last month, compared with its main competitors — Comcast (24%), Disney (38%), and ViacomCBS (66%) in the same period.
And this despite EU Internal Market and Services Commissioner Thierry Breton asking Netflix CEO Reed Hastings to limit streaming to standard definition instead of high definition, which needs more bandwidth, to avoid online congestion.
Cash burn
Netflix's business model is driven mainly by renewal rates and its famous cash burn approach should lessen as the company halts production. Production in the US and Canada has been stopped after The Witcher became the first major UK project to suspend filming. The company's primary goal is to add new subscribers, a difficult goal in financially strained times.
Netflix's large library size and recommendation algorithm are proving its key competitive advantage. Most of Netflix's second-quarter output is ready to premiere on schedule, with new series online to debut such as #blackAF, NAILED IT!, Middleditch & Schwartz, Ryan Murphy's Hollywood, Octavia Spencer's Self Made, Unorthodox as well as the third season of Ozark.
Credit Suisse found that first-time app downloads (new subscribers) are shifting to Netflix in affected regions such as Hong Kong, South Korea, Italy and Spain. Needham & Co expect streaming revenue to decline 6% in the US and 28% in international markets. Some even believe that COVID-19 will move customers elsewhere in a crowded streaming market.
Driven by debt
In April 2019, Netflix borrowed an extra $2 billion (€1.8 billion) to fund content spending, and doubled this in October. This has been its strategy for some time as the company has racked up more than $12 billion in long-term debt, helped by the Federal Reserve's slashing of interest rates to historical lows.
Despite generating more annual revenue ($20 billion plus) than its rivals, Netflix rarely runs a yearly profit due to its huge expenditure.
"This is a dream scenario for them," Lynnwood Bibbens, CEO of Reach TV, an entertainment network, told Observer. "The worse thing for them is high interest rates as they plan to keep increasing their spend on original content. Debt lenders, in particular Morgan Stanley, will have no problem securing debt funding," he said.
Coronavirus' top winners: From Netflix to Tesla
The coronavirus has battered the global economy. But not everyone is losing money. Video streaming platforms and home training systems are seeing a huge boom as people are social distancing and staying at home.
Image: picture-alliance/NurPhoto/Yichuan Cao
In top gear
Tesla has emerged as the most valuable automaker amid the pandemic, eclipsing Toyota and Volkswagen, despite selling only a fraction of cars sold by the traditional behemoths. Tesla shares rose more than 100% in the second quarter during which the carmaker's sales topped estimates thanks to a rapid ramp-up in production at its Shanghai plant, which remained largely unaffected by the pandemic.
Image: Reuters/Y. Sun
Netflix and chill
Netflix has added more than 25 million subscribers in the first six months of the year as lockdowns forced people to stay homebound. The streaming platform has gained $70 billion (€61 billion) in market capitalization this year, making it more valuable than media giants such as Walt Disney, AT&T, the parent of HBO, and Comcast, owner of NBC and Universal Studios.
Image: picture-alliance/AA/M.E. Yildirim
Ditch your gym
The fitness startup Peloton, which makes exercise bikes and also offers online fitness classes, saw its sales jump 66% in its third quarter as stay-at-home orders and coronavirus fears prompted many fitness enthusiasts to ditch their gyms and opt for the company's offerings. In April, Peloton held its largest class ever with more than 23,000 people attending it from home.
Image: picture-alliance/AP Photo/M. Lennihan
Coronovirus billionaires
Moderna Chief Executive Stephane Bancel (R) briefly became a billionaire after the company shipped an experimental coronavirus vaccine for clinical testing in humans, boosting its share price, Bloomberg reported. Malaysia's Lim Wee Chai (L), who owns a majority stake in medical gloves maker Top Glove, also entered the billionaire's club amid the outbreak.
Stay home, stay connected
Few companies have been so talked about during the past few months as teleconferencing firm Zoom. At its peak, the company attracted more than 300 million participants on some days in April, up from 10 million in December, despite some PR troubles around privacy and security issues. The company's market cap has zoomed past $70 billion, up from around $16 billion at the time of its IPO last year.
Image: picture-alliance/dpa/W. Ring
Gaming gains
Gaming provided a perfect escape for millions stuck at home. Online games such as Call of Duty attracted tens of millions of players. The latest game, Nintendo's popular Animal Crossing franchise, sold more than 13 million units within six weeks of its launch in March. Nintendo's Switch and other consoles such as Xbox and PlayStation have seen demand soar over the past few months.
Image: Getty Images/AFP/K. Nogi
Streaming to glory
The Swedish music streaming firm saw its paid subscribers base surge to 130 million in the first quarter amid coronavirus lockdowns. The company saw usage on video game consoles such as Xbox and PlayStation soar during the period. Spotify's US-listed shares are among the top performers so far this year.
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Stay-at-home stocks
The pandemic has boosted stay-at-home stocks such as Apple, Microsoft, Amazon and Facebook — companies whose offerings facilitate online communication, remote working and transactions. These companies have been the main drivers of US indices over the past few months. Companies like Paypal and cloud-computing firm Twilio have also surged in the past months.
Image: Reuters
Empty shelves
Retailers such as Germany's Rewe and France's Carrefour saw food items fly off their shelves during the initial days of the pandemic as panicking shoppers stock up their pantries. The rush at the supermarkets prompted investors to lap up shares of packaged food companies. Online retailers like Amazon are also seeing strong demand as virus-spooked shoppers avoid brick-and-mortar stores.
Makers of face masks, hand sanitizers and sanitary wipes are witnessing a huge surge in demand as shoppers around the world seek ways to protect themselves against the rapidly spreading virus. 3M Corp, which makes face masks among other things, is one of the biggest beneficiaries.
Image: picture-alliance/NurPhoto/Yichuan Cao
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Not all so positive
But not every analyst is as confident. Analysis from Needham & Co. shows that Netflix may stand to lose revenue as employment uncertainty leads to fiscal restraint among consumers.
Netflix relies on subscription revenue set at fixed monthly increments. Increased viewership is good for the brand and may mitigate long-term churn rates, but doesn't give any immediate financial benefit. Subscribers can in effect double their consumption in self-quarantine without adding to Netflix's coffers.
"At least in the US, I think newer providers (e.g. Disney+) are more likely than Netflix to see a run of new subscribers because Netflix's penetration is already so high," Jon Giegengack, principal at Hub Entertainment Research, told Observer. "More viewing doesn't equate to more revenue for Netflix or other 'all-you-can-eat' platforms."