Why Coronavirus Cocooning Could Help Netflix

Worried about a global virus outbreak? Stay home and binge some movies.

BofA Securities said Wednesday early data show that's what's happening in Italy, South Korea, Japan and other places where the COVID-19 outbreak has forced major lifestyle changes — and noted it could be good for Netflix, Inc. NFLX.

The Netflix Analyst

Nat Schindler kept a Buy rating on Netflix with a $426 price target.

The Netflix Thesis

Schindler said it was already thought Netflix could be insulated from a coronavirus-related downturn, but the new data may support the notion that it could even see fundamentals improved by the outbreak.

Schindler referred to data from coronavirus hotbeds that he said validate that thesis and show year-over-year growth for Netflix and trendlines running upward from the beginning of more intensity in the epidemic locally. Netflix mobile app sessions in South Korea are up almost 15% since Jan. 1, for example.

"Potential strength in downloads relating to the “stay-at-home” impetus during the COVID-19 outbreak may yield modest 1Q upside to Street numbers," Schindler wrote in a note.

Among the positives for Netflix could be reduced theater-going, he said. But there also could be a negative — filming schedule delays that could affect Netflix originals.

A Contrarian View

Schindler's analysis fits the conventional wisdom on "stay-at-home" stocks, but an opposite view was posited Tuesday by Needham's Laura Martin.

Martin noted it doesn't really matter how much people watch Netflix — only how many watch — because pricing is fixed on a per-month basis. Once someone subscribes, it doesn't matter how much they cocoon in front of the TV, and the overall hit to the economy from the disease outbreak could lead people to drop their subscriptions.

Schindler acknowledged that in a major recession scenario, Netflix would likely be hurt by loss of subscribers.

"Yet, we still see it outperforming given the business’s subscription characteristics, low price point compared to other entertainment options and relative virus insulation," he wrote.

NFLX Price Action

Netflix shares were down 2.5% on Wednesday, trading at $355.

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