Full stream ahead: The Netflix share price has bucked the downward trend in 2020

Full stream ahead: The Netflix share price has bucked the downward trend in 2020

  • Social distancing measures have helped boost Netflix membership rates
  • The streaming market may become more competitive now
  • Netflix share price has held up well in a difficult market

It is no secret that 2020 has been a bloodbath in stock exchanges around the world. The FTSE 100 has had a torrid time, as it has dropped to around the 5,000 mark following the coronavirus outbreak.

Yet, some companies are bucking the trend.  Supermarkets like Sainsbury’s and Morrison have both climbed recently, mainly thanks to their expanded home delivery services. With millions of people all over the planet staying at home, streaming services like Netflix have also benefited.

Research carried out by Credit Suisse shows that the areas most affected by the coronavirus have shown an increase in the number of first-time Netflix users. By looking at download data for Hong Kong and South Korea they found increased demand. It is worth bearing in mind that Netflix isn’t available in China.

In Hong Kong, the rate of downloads so far this year is about double the number from the start of 2020. In South Korea, it is 33% higher. Italy and Spain have also shown signs of more people turning to this service.

A look at the Netflix share price

The price of Netflix (NFLX) stock has been consistently out-performing the market during this turbulent period.

At the time of writing, the price of the shares is $319.75 (£270). At the start of the year, it was over $329, so the year to date has seen its price drop. However, when we compare Netflix stock to the overall market, it has been an impressive performance to stay so high.

Indeed, it had surged to close to $390 in mid-February, before being dragged down under $300 at one point. Let’s not forget that Netflix only climbed above $200 for the first time in early 2018.
It has suffered a high degree of volatility as the service has grown and also encountered problems since then.

This makes it difficult to calculate a fair market price for their shares. This is complicated by the question of whether their new customers stay on after the current health crisis is over.

It is also worth noting that viewership levels haven’t always been reflected in the share price. In September 2019, the Netflix share price had dropped by 20% despite growing numbers of viewers. It seems that the company still has to find a way of turning membership numbers into impressive, consistent profits.

The concerns over new content and competition

One worrying issue is the possible lack of fresh content if the coronavirus crisis lasts much longer. The company has announced that it has halted the filming of new shows and movies such as Stranger Things and The Witcher.

For newcomers, there should be more than enough existing content to keep them happy. Anyone who has been using the service for some time and watches a lot may be restricted in their future choice. Yet, it is likely that Netflix bosses have plans to buy in new content if it is needed.

Their main rival is Hulu, which was only 3% behind Netflix in terms of new subscribers in the three months to October 2019. It is possible that the current social distancing measures see other services rushed out to meet demand.

Conclusion

Netflix looks like being one of the safest bets on the stock market just now. If social distancing carries on for much longer than this company is likely to carry on growing its user base, particularly in North America and Europe.

The fact that most sports have been cancelled or postponed is another important factor. There are lots of people staying at home and looking for entertainment. Netflix is one of their best options, making it a good investment.

Some sources have the prediction for this stock at over $400 (£337). It is unlikely that we see this figure soon in such a depressed market. However, Netflix appears to be in a far better position that many companies when it comes to gaining value in the next few months.

By Robert Bell
Having worked for years in the UK banking industry, I began writing and reporting financial markets after migrating abroad to Bolivia. My interests include learning new ways to make money and learning to speak Spanish.

Investing is speculative. When investing your capital is at risk. This site is not intended for use in jurisdictions in which the trading or investments described are prohibited and should only be used by such persons and in such ways as are legally permitted. Your investment may not qualify for investor protection in your country or state of residence, so please conduct your own due diligence. This website is free for you to use but we may receive commission from the companies we feature on this site. Click here for more information.