Inflation has reared its ugly head, forcing people to pay more for groceries, rent, and fuel. According to the Bureau of Labor Statistics, the consumer price index, which measures prices on a basket of goods, rose 8.6% year over year in May. With prices rising so quickly, investors can look to companies that are less exposed to higher costs to protect their portfolios from inflation.
AMC Entertainment Group (AMC -3.51%), Netflix (NFLX 1.38%), and DraftKings (DKNG -0.42%) fit that description. Of course, they are not entirely immune to rising costs, but in aggregate, they are less harmed by inflation than others. Let's look at how each could help you crush inflation.
US Consumer Price Index YoY data by YCharts
AMC Entertainment Group
One of AMC's most considerable expenses in its most recent quarter was film exhibition costs, at $189.8 million. The item is the share of box-office revenue the movie theater chain splits with studios. This expense is shielded from inflation because it depends on box-office revenue. For instance, if a film earns $500 million at its theaters, AMC would pay an estimated $250 million to the studio that produced it. If the movie flops and earns $10 million, AMC would pay $5 million. In that way, the price level does not raise AMC's expenses.
Another primary revenue source is concessions sales like popcorn, soda, and snacks. In this segment, AMC would be exposed to higher costs because of inflation, but the segment is so profitable that there is room for AMC to absorb the costs. Indeed, in its quarter ended in March, AMC's food and beverage revenue was $252.5 million, and the costs of goods sold were $42.6 million.
Netflix gains a competitive advantage
Netflix has long been a money-saving choice for consumers tired of paying a cable bundle's high costs. An entire family can have entertainment at less than $20 per month. Netflix's most significant cash outlay is for content. Fortunately, participating in creating movies and series is something people are eager to do. Working a small role in a film is more desired than a comparably paying job in another industry. For that reason, Netflix's comparable content costs are not likely to rise along with inflation.
NFLX Revenue (Quarterly) data by YCharts
Meanwhile, if other entertainment venues raise their prices to protect profit margins as inflation rises, it will give Netflix a competitive advantage. It is already arguably one of the most affordable entertainment choices. That advantage grows as theme parks, sports stadiums, concert halls, and movie theaters raise ticket prices.
DraftKings saves gamblers on expenses
DraftKings is a mobile gambling app that allows people to place wagers in the comfort of their homes. The price of transportation -- both cars and fuel -- is one of the fastest-rising costs that folks face. Some people live hours away from their nearest casino. If inflation persists, folks could more frequently choose a mobile gambling option instead of driving to the casino.
Additionally, unlike brick-and-mortar casinos that have more expenses associated with operating the facilities, DraftKings' direct expenses are not as exposed to rising inflation. DraftKings' most considerable cost in its most recent quarter was on sales and marketing. Ironically, this is an expense it could reduce as consumers organically seek out its services while attempting to avoid the long drive and expensive hotel stays associated with gambling in person.
Consumer trade-offs take time to come to fruition
When businesses incur higher operations costs, they typically pass those along to consumers via price increases. Folks facing rising costs are less enthusiastic about purchasing said product or service at a higher price. The trend causes people to seek alternative options, which could benefit some companies while hurting others.
These shifts in consumer spending take time. For instance, a family that owns a gas-guzzling sport utility vehicle does not immediately trade it for a less fuel-intensive car when gas prices rise. However, if high fuel prices persist, these decisions come to the forefront.
While there is no complete safety from rising inflation, investors could find some protection by adding AMC, Netflix, and DraftKings stocks to their portfolios.
