Schools are closing, businesses are shuttering, and governments far and near are advising people to stay at home. While some consumers are still able to practice social distancing, a growing number are being asked to quarantine themselves, shelter in place, or are being placed on lockdown as the result of the SARS-CoV-2 virus that causes the COVID-19 coronavirus illness.
There's been anecdotal data that suggests viewership on streaming sites has been rising as the result of stay-at-home and work-from-home trends. Now a study released by television ratings specialist Nielsen uses previous data to extrapolate that streaming video consumption could see a much greater jump in demand during the lockdown than many are anticipating -- and several stocks could be huge beneficiaries as a result.
Image source: Getty Images.
The data suggests a near-60% jump in demand
Nielsen released a report early this week, titled Staying Put: Consumers Forced Indoors During Crisis Spend More Time on Media. The headline finding was that "staying put in our homes can lead to almost a 60% increase in the amount of content we watch."
The report reviewed evidence from two recent crises to illustrate the point. During the 2016 blizzard (Snowpocalypse) in New York, total TV usage (TUT) in the area climbed by 45%. At the same time, streaming video soared 61%, as viewers binged series and watched movies to pass the time while sequestered at home. Nielsen reported a similar trend during Hurricane Harvey in Houston in 2017, as TUT increased by 56%.
Finally, the European Union (EU) reached out to several streaming video providers, asking them to reduce streaming quality from high definition (HD) to standard definition -- particularly during times of peak use, to reduce the strain on the broadband data infrastructure. That provides the clearest sign yet that streaming demand is soaring.
Based on that anecdotal data analysis, here are three stocks that will likely benefit from sheltering at home.
Henry Cavill as Geralt of Rivia in a scene from the Netflix original series The Witcher. Image source: Netflix.
1. Netflix
There's a definite advantage to being king of the hill, and Netflix (NFLX +1.15%) is the undisputed leader. The streaming pioneer closed out 2019 with more than 167 million paying subscribers, up 20% year over year. That drove revenue up 31%, and earnings per share soared 333%. It's also important to note that this was before the sweeping spread of coronavirus forced people into their homes to ride out the storm.
Netflix was already guiding for 17% growth, with its subscriber count growing to 174 million in the first quarter, but it now appears that could be a conservative estimate. There's since been additional data that suggests that Netflix's subscriber counts are rising faster in the face of all the lockdowns, but we won't know for sure how much demand has increased until Netflix reports first-quarter earnings on April 21.
One more thing: During the stock market crash that accompanied the Great Recession of 2008-09, the S&P 500 index lost 56% of its value between Oct. 31, 2007, and March 9, 2009. At the same time, Netflix stock gained 45% as consumers sought an inexpensive refuge from the ongoing financial crises.
Now might be a good time to buy Netflix.
Data by YCharts.
2. Alphabet
Parent company Alphabet (GOOGL 0.42%) (GOOG 0.58%) may not be the first name you think of in streaming video, but Google's YouTube has a clear advantage, particularly among younger viewers. The fall 2019 version of Piper Jaffray's Taking Stock with Teens survey found that 37% of teens' daily video consumption is done on YouTube, slightly ahead of 35% for Netflix. That marked a changing of the guard, as YouTube had long trailed Netflix in previous surveys.
YouTube was also one of the services that responded to the EU's call to throttle streaming speeds, suggesting that young people are spending more time on the platform.
There are other reasons to buy Alphabet's stock during this meltdown. First, internet use in general and search in particular will also spike as the crisis deepens, as consumers seek out the latest information as events unfold, and Google search is the undisputed leader. The company will no doubt take a hit to revenue, as marketing budgets are typically among the first to be slashed during a downturn and Google gets the bulk of its revenue from advertising. Fortunately, Alphabet also has a rock-solid balance sheet that will help it weather the storm, with cash and marketable securities of almost $120 billion, but less than $5 billion in long-term debt.
The need for streaming and search will spike during this crisis, making it a good time to buy Alphabet.
Image source: Getty Images.
3. Amazon
E-commerce giant Amazon.com (AMZN 0.87%) has long held the runner-up position in streaming video, with its Prime Video streaming platform. The company has more than 150 million paid Prime subscribers, but Amazon has been tight-lipped about how many of those subscribers regularly use the streaming video option. Whatever the number is, it will likely increase as viewers look to expand their choices during an extended lockdown.
Amazon was also among the companies called on by the EU to decrease streaming quality to reduce the load on the internet infrastructure.
Additionally, as people are reluctant or even discouraged from leaving their homes, Amazon provides a much-needed pipeline for household goods. The company announced earlier this week it will stop accepting nonessential items at its warehouse to focus on consumer staples and medical supplies. The move came after Amazon faced shortages of many household goods in the wake of significant online shopping as consumers remain indoors. With more and more shoppers foregoing the weekly trip to the grocery store and hunkering down, the e-commerce king will remain a port in the storm.
Amazon also has a solid balance sheet, with more than $55 billion in cash and marketable securities and just $23 billion in long-term debt.
Since Amazon will provide both entertainment and needed supplies, buying its stock is almost a no-brainer.
