While many businesses struggle to survive the consequences of the COVID-19 pandemic, Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN) are thriving. The two benefit as people worldwide are hesitant to leave their homes and avoid exposing themselves to the virus.
Since the start of the pandemic, consumers flocked to Amazon to help fill their essential shopping needs. Similarly, as movie theaters and other entertainment venues were ordered to close, Netflix was a beneficiary in the surge of demand for in-home entertainment. The two companies will report earnings later in October, and both could potentially report having surpassed 200 million subscribers.
Netflix provides a safe in-home entertainment experience during the pandemic
Between the two, Netflix is closer to reaching the 200-million-subscriber milestone. The streaming content provider reported reaching 193 million at the end of the most recent quarter. However, management cooled expectations for the near-term growth when they stated:
"In Q1 and Q2, we saw a significant pull-forward of our underlying adoption leading to huge growth in the first half of this year... As a result, we expect less growth for the second half of 2020 compared to the prior year."
In fact, the specific number of subscribers the company is forecasting it added in the current quarter is 2.5 million. Even though Netflix is within striking distance, it will take a few more quarters if it continues as forecasted.
However, that forecast was given a few months ago, and coronavirus cases are still surging in many parts of the world. Movie theaters are still nowhere near reopening at full capacity, and some major blockbuster films have been released directly to streaming networks or delayed until 2021. With limited entertainment options, and people still hesitant to leave their homes, Netflix may have continued to attract subscribers at an elevated pace in the current quarter.
Combine that with the fact that the company generally attracts the most subscribers in the fourth and first quarter, and that lines up nicely for member additions to exceed expectations.
Importantly, average revenue per user was $10.80 in the most recent quarter, and if the company reaches 200 million subscribers, that would be an annualized rate of over $24 billion in revenue. To put that into context, the company had just over $20 billion in revenue for fiscal 2019.
Amazon is delivering value for Prime members
The last time Amazon gave an update on Amazon Prime membership totals was at the end of January, when it reported having 150 million members. Interestingly, in the first two quarters of 2020, subscription revenue, which includes fees from Prime memberships, increased to $11.6 billion from $9 billion in the prior year. It may very well be possible that the company has surpassed the 200 million milestone and has yet to disclose the figure.
Since the onset of the pandemic, people have been relying on Amazon to deliver essentials. As a Prime member, you can get free shipping on millions of items with no minimum spending requirement. Non-members have to spend a minimum of $25 to receive the benefit. Moreover, Prime members get access to Prime video content for free as part of their subscription. The demand for in-home entertainment, and an increasing reliance on Amazon to deliver essential needs, make Amazon Prime especially valuable for consumers during the pandemic.
Importantly for investors, Prime members order more often versus non-Prime members. The no minimums for free shipping explains that. Prime members also spend substantially more than non-Prime members. Therefore, if the company reports having surpassed the 200 million milestone, the surge in shopping during the pandemic is more likely to continue. That would give more fuel to the rise of this consumer discretionary stock, which is already up 82% year to date.