What’s happening: US stocks have swung wildly but been on a steep downtrend this month. In fact, the Dow has fallen more rapidly than it had during the 1929 market crash.
Companies gaining from coronavirus: Businesses are witnessing both a slowdown in demand and supply constraints. A near pause to the economy, due to cancelled events, travel bans, closed schools and curfews, demand has slumped. On the other hand, Shuttered factories and restrictions on the movement of goods have led to severe global supply chain disruptions.
Most companies are issuing warnings of missing their revenue and earnings targets this year, further dampening investor confidence. And, there stocks have plummeted. Even amid the larger market sell off, there are a handful of stocks that are still rising. Among these are Netflix and Zoom Video Communications. However, pressure remains in the near term.
Details: Coronavirus is spreading rapidly, and governments have encouraged people to stay home as much as possible. Lockdowns are commonplace and words like “self-quarantining” and “social distancing” have been added to everyone’s vocabulary.
Netflix is well positioned in the current scenario, as its viewership could increase. The company already has more than 160 million paying subscribers globally and earns about $20 billion in subscription fees. These figures may go up, as more people stay home due to coronavirus fears.
Even with a healthy subscriber base, Netflix is targeting only a fraction of people with internet connections worldwide. The pandemic nature of COVID-19 means that people are affected globally, giving Netflix a huge opportunity to scale its base. Moreover, with people being housebound, they are spending more time watching Netflix. This translates to higher subscriber engagement.
Zoom is benefiting as more people are opting to work from home. With a surge in remote teams, the need for collaboration tools has spiked. The Silicon Valley-based company has seen a massive increase in demand for its software, which provides virtual video conferencing.
Zoom has also witnessed an increase in sign-ups from students at all grade levels, as teachers continue to hold classes remotely. Even doctors are switching to video conferencing for their non-emergency appointments.
The company was already reporting robust numbers before the virus scare started. It reported strong earnings growth for the last three quarters, ranging between 275% and 800%. Zoom reported a whopping 1180% increase in its net income for the fourth quarter, with 78% revenue growth. Management also issued solid guidance for the first quarter and for fiscal 2021.
How the shares have performed: Shares of Netflix have gained almost 16% over the past six months. In the last five trading days, the stock has risen more than 5%. Shares of Zoom, which went public in April 2019, have surged 19% over the course of a month, while markets have been in freefall. The stock has climbed 82% in the last three-month period and 13% over the past five trading days.
Near-term pressure: The increased base can cause near-term pressure on both Netflix and Zoom’s infrastructure. The companies will need to spend on capacity building, which could pressure margins. For Zoom, this is more concerning, since a large part of the user base are not paid users of the application.