Unless you’ve been hiding under a rock, you know that yesterday was the single worst trading day for the United States in over 30 years. The Dow alone fell 10% in a single day—its worst performance since Black Monday in 1987. And believe it or not, the Dow performed better than many of its foreign counterparts.
And while the Dow and Nasdaq—and their respective stocks—are seeing a bounce-back today (as of the time of this writing, anyway), you can bet the market will continue to be volatile for a while. The biggest questions investors have, of course, are which stocks are most susceptible to the economic ripple effects of the coronavirus pandemic in the short term to medium term? And which companies are best positioned to ride out the crisis?
While no one stock can be declared immune to COVID-19 and the market volatility associated with it, an interesting new report on the volatile media and advertising sectors suggests one company is better positioned to weather the storm: Netflix.
According to the report, by analyst firm MoffettNathanson, the streaming company may fare better than its more established media rivals, such as Disney, and platform-based internet giants such as Google, Facebook, and Snap. Why? Simply put, Netflix doesn’t rely on advertising revenue, while Facebook, Google, Disney, and Snap all very much do.
How are advertising and the coronavirus related? If the economy goes into a recession, one of the first things companies cut are ad budgets. If advertising budgets go, Facebook, Google, Disney (which owns ABC and ESPN), and Snap could see their ad revenues sink. (Disney incurs double jeopardy in this scenario because of its additional reliance on theme parks.)
Netflix, on the other hand, is the one media and internet company that isn’t dependent on ad revenue. Its revenue model is almost entirely subscription-based. Further, if people increasingly stay home as the coronavirus spreads, they’re going to need something to keep themselves entertained—so it’s plausible that Netflix’s subscribers could actually increase as the pandemic rages on.
While there’s no way to guarantee this will happen, the reasoning behind it seems sound. And already this year, as MoffettNathanson’s chart below shows, Netflix is performing better than most other media and internet company stocks. Netflix is actually up 8% year-to-date as of Wednesday. Other major internet and media stocks, on the other hand, are down anywhere from 10% to 53% for the year to date as of Wednesday’s market close.