There's plenty of pundits recommending so-called "coronavirus stocks" -- claiming their products and services are useful during pandemics. In many cases, it seems that trader mentality is at work, with only a short-term possibility of a spike in revenue.
By contrast, here I'll present three businesses that could benefit from COVID-19. In each case, it's not that the coronavirus is a game changer. It could merely accelerate trends already in place, but trends that have staying power.
Did China give us a sneak-peak for streaming?
Video-streaming service iQUIYI is popular in China. The coronavirus outbreak started there, and ultimately confined many workers to their homes. As this happened, iQUIYI noticed a dramatic spike in viewership. However, CEO Yu Gong was quick to say the trend was likely temporary, and chose not to give net subscriber-growth guidance based on this unique event. Even still, it's something to monitor in coming quarters.
Now the U.S. is in a very similar situation. It's almost impossible to keep up with the growing list of events that are cancelled and stores that are closed. Very soon a large percentage of the U.S. population could be just sitting at home. Will streaming services like Netflix (NASDAQ:NFLX), see a boost in traffic like iQUIYI did? It's likely.
The timing of this event is a missed opportunity for Comcast (NASDAQ:CMCSA). Its new streaming service Peacock (which offers a Free and Premium option) doesn't debut nationally until July 15. And considering the company is only guiding for modest subscriber growth (30 million to 35 million total subscribers by 2024), it could have accelerated toward that goal far ahead of schedule with an earlier release.
To be clear, Comcast's streaming platform still has potential to reward shareholders long term. But by not having its streaming service ready right now, it's missing out on a catalyst toward its adoption.
What about Netflix?
So what about Netflix? The company already has over 61 million U.S. subscribers, and chances are they're at home binge-watching as much content as possible during this time. So Netflix will undoubtedly see an increase in hours spent on its platform. But that doesn't translate to higher profits -- higher revenue comes from subscriber growth. And slowing U.S. subscriber growth has scared some investors away from Netflix's stock. There's some evidence that U.S. subscriber growth is booming from COVID-19, but it's just an educated guess for now.
For Netflix, the real opportunity is international subscriber growth. In the fourth quarter of 2019, international revenue accounted for 54% of its total, and was far less profitable. But the situation is rapidly improving as international subscriber growth blew analysts away in Q4. Netflix's forecast was for 7.6 million new international subscribers. However, it beat its own guidance by 16% with 8.8 million new international subscribers.
Subscriber growth essentially deposits revenue to the bottom line, since it's merely selling the same content to more people. And consider that it's not just the U.S. experiencing coronavirus quarantines and social distancing. This is happening worldwide, and Netflix could make a big move toward making its international operations profitable as a result.
An even bigger winner?
So it's subscriber growth that matters most for Netflix, not necessarily time spent on the platform. Roku (NASDAQ:ROKU) on the other hand could profit from increased streaming hours. Here's how.
It's no secret that consumers are already shifting from pay-TV to on-demand streaming. According to its letter to shareholders, viewers streamed over 40 billion hours of content on Roku in 2019 -- up 68% from 2018. However, growth in monetizable advertising impressions exceeded this increase in viewership.
Roku records revenue in two segments: player and platform. Player segment revenue records the company's hardware products like the digital media players that allow your TV to stream content from the internet. Platform segment revenue includes the aforementioned advertising revenue. For 2019, platform segment revenue grew 78% year over year -- outpacing the gains in viewership.
Simply put, the more time people spend on Roku's platform, the more opportunity there is to be shown an ad that Roku gets paid for. As people stay home in the coming weeks and months, this could further pad the company's impressive revenue growth. Total net revenue -- player and platform -- grew 52% year over year in 2019.
I'm not the first to think this regarding Roku, but the stock is currently down around 50% from 52-week highs -- an indication that Wall Street isn't buying the thesis yet. Perhaps investors are still concerned with valuation. After all, even with the stock's tumble, it's traded at a cheaper price-to-sales ratio in the past year. However, Roku is a high-growth company, and investors looking years beyond the COVID-19 pandemic could be richly rewarded as adoption grows in the U.S. and the company expands internationally.
An overlooked "stay-home" company
Spotify (NYSE:SPOT) strives to go beyond merely music streaming. The company's vision is to be the top audio platform around. To do this it's investing heavily in original podcast content. For example, just in February it acquired The Ringer -- a content company with leading sports and entertainment podcasts. Through acquisitions like this and other Spotify originals, its quarterly podcast-streaming hours increased 200% year over year in the fourth quarter of 2019. And since original podcasts can only be found on Spotify, it makes it a very sticky platform.
The company has two products -- a premium membership and ad-supported streaming. Of its monthly average users (MAU), 56% are ad-supported streamers. And ad-supported user growth outpaces the company's overall user growth. The longer these users stream audio on Spotify, the more ad revenue Spotify can generate.
Furthermore, Spotify is uniquely positioned as a global company. Europe, North America, and Latin America are the company's three primary regions accounting for 35%, 27%, and 22% of its MAU respectively. The COVID-19 pandemic, and the accompanying activity shutdown, is a world issue. This gives Spotify opportunity to see increased activity across its entire user base around the world.
Plainly said, more people at home could potentially Spotify's profits. Many people could be driven to try Spotify for the first time, especially since it's free to use. More users could find compelling content during this time that they otherwise wouldn't have had time to find. If it's good enough they'll want to continue streaming new podcast episodes even after the current health crisis has ended. All told, 2020 could be a exciting chapter of Spotify's book.