There is an eerie timing to Netflix’s Pandemic – the six-part documentary series that looks at medical practitioners preparing for an unavoidable flu pandemic. Just as Pandemic the series is taking off, outside the streaming world, the Netflix stock is outperforming, as a rare outlier in the market sell-off that has followed the global spread of the coronavirus (Covid-19).
Netflix has comfortably outperformed the NASDAQ since the index peaked on 19 February. Other US-listed stay-at-home players such as Amazon, Facebook, Peloton and Slack have also outperformed.
Last week was the worst for markets since the financial crisis, and volatility continues as countries put in place measures to try to contain the virus. In times like these, with many companies and government bodies requiring their employees to work from home, stay-at-home businesses such as home entertainment, social media and e-commerce are well placed.
Emerging market e-commerce may get a permanent boost from the virus
The coronavirus has also raised the prospects for stay-at-home businesses in emerging Asia and could accelerate the move online. In Hong Kong, China, Singapore and Thailand, companies and government bodies require employees to work from home, to minimise the chances of contracting the virus. As a result, footfall at traditional retailers has collapsed. People who, until now, have been reluctant to try online alternatives may now be pushed into e-commerce through necessity.
The trend could improve the sales of emerging market e-commerce players and could even outlive the virus, as people become accustomed to a higher degree of e-commerce and make the shift permanent. This step-change in consumer behaviour could lead to a revaluation of EM e-commerce companies.
So far, e-commerce in emerging markets has averted the worst of the sharp sell-off last week, but we urge investors to exercise the following criteria when evaluating consumer stocks:
- Our Cash Sustainability Index (CSI) identifies companies that are cash-generative in the sector and we think these should outperform, irrespective of the virus. The market is less forgiving of companies that bleed cash. The collapse in Jumia after its IPO is a case in point.
- Companies, where e-commerce is a viable alternative to traditional retail, are on a sound footing. In markets where e-commerce is peripheral such as Africa, the e-commerce stocks are less likely to see an improvement.
- E-commerce may be viewed as a haven, but a tighter funding environment may curtail the upside. The market for EM e-commerce equity funding could weaken in this environment.