Why Netflix has double immunity to the ravages of COVID-19

After adding a record 15 million-plus subscribers around the world, boosting revenue 26% and doubling earnings in the three months to March, US streaming video giant Netflix has confirmed that it is the stock for the COVID-19 social distancing era — along with Amazon, which reports next week.

It’s not companies like Coca-Cola — which reported a 25% drop in sales volumes in the first three weeks of April — or other media companies such as Disney, which may have 50 million subscribers to its streaming service but is leaking hundreds of millions of dollars a week with its theme parks, TV studios, sports network, ESPN, film studios and merchandising operations running on empty or closed.

Netflix is as far away from a sagging empire like that of the Murdoch clan’s Fox and News Corp as chalk is from cheese.

Its new subscriber numbers are more than double the seven million it had forecast before the pandemic, and its rise in value so far this year has seen it displace the likes of energy giants Exxon and Chevron from the most valuable companies list of the S&P 500 companies.

Netflix shares are up more than 35% this year; Exxon and Chevron shares are down more than 33%. Amazon shares are up 26%, Microsoft 6.4%, but the US market is down more than 20%.

Netflix is worth more than our biggest companies, BHP and CSL, and is growing faster. It doesn’t depend on ad revenues to fatten its profit and loss account — Amazon does, Disney does, Fox does, The New York Times does.

That makes Netflix doubly immune to COVID-19’s impact.

In fact, at US$192 billion, Netflix is now worth more than Exxon Mobil (US$174 billion) or Chevron (US$156 billion).

In January 2013, Exxon topped Apple to be America’s most valuable company, worth US$417 billion. Netflix was still Netwhat?, a company trying to break away from its original idea of renting DVDs via mail.

Apple was then worth US$415 billion — now it’s worth more than US$1.2 trillion, still down on veteran Microsoft, which had a market value on Tuesday of US$1.3 trillion. Microsoft’s Outlook, Excel, Word and cloud computing are products that newbies reckon are outdated but which continue to spin off billions of dollars in cashflow and resist the depredations of viruses.

And at $US$1.3 trillion Microsoft is more valuable than the entire listed US energy sector which had an approximate market value on Tuesday of just under US$700 billion. That valuation is heading lower as the oversupply of oil and falling demand crunch energy and share prices.

To put it in perspective, Microsoft is at the moment worth more than the entire Australian stock exchange.

In Australia, we don’t have any significant companies that you could class as coronavirus-resistant, apart from Nine Entertainment and its streaming service Stan (which must not be doing well because Nine hasn’t boasted about its performance since its interim results in February).

News Corp is down 40%. Fox, the rump of the empire sold to Disney in 2018-19, is off 31%, even though it owns the most-watched cable news network in the US, as well as a free-to-air TV network whose viewing has lifted during the COVID crisis.

But it is an old business, suffering from a slide in ad and other revenues. Fox News’ core viewing demographic — the elderly — are also the most vulnerable to COVID-19.

The big five tech stocks — Apple Amazon, Microsoft, Facebook, Alphabet (Google) — account for 20% of the value of the S&P 500. That’s more than US$5 trillion.

Netflix is a tiddler, worth just under 20% of the value of Apple, Amazon and Microsoft alone.

This article was first published by Crikey.

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