For some companies, the coronavirus pushes people in their direction. With so much time to be spent at home, a Netflix subscription now seems perhaps the best value £5.99/month that one can spend – I suspect there will be very few cancelled subscriptions in the coming weeks. For Netflix, their vast library of fresh content will allow them to continue to entertain customers in the forthcoming weeks, something that media providers more reliant on sports programming will struggle to do. Netflix downloads in Asia saw 28% year on year growth in February 2020 (source: Bloomberg) as the virus took hold in that region, and such was the intensity of streaming activity in Europe that the EU had to request Netflix (and other streaming services) to restrict its bandwidth usage for fear of overburdening the network
Games companies such as Activision benefit in much the same way as Netflix, but enjoy the further benefit of being able to continue to generate new content through the period of social distancing. While many games developers are now working from home, their ability to generate new code, artwork, and gameplay is largely undiminished. In prior recessions, US gaming software revenues have grown: in 2001 by 9%, and in 2008 by 24% (source: Bloomberg). With new games consoles due to launch in the coming months, we expect the sector to do well in the coming months. When Activision launched their new Battle Royale game Warzone earlier this month, 6mn people played it in the first 24 hours (source: Oppenheimer research).
Beyond the entertainment space, other companies are well positioned to weather the Coronavirus storm. Ocado is the clear leader in providing e-commerce solutions to large grocers around the world. Much of the current coverage focuses understandably on the UK retail business, but we will be more interested to see how much of the online ordering activity persists beyond the end of the acute phase of current crisis. We suspect that consumers’ habits will be seen to have changed. For those grocers that have not thus far invested in a robust e-commerce solution, we suspect that Ocado will be the supplier of choice.
In the corporate world, working from home is the new norm, and companies that facilitate that now find their services in extraordinary demand. Microsoft’s cloud solutions – in particular communication tools such as Skype – are allowing workers to find the flexibility that the current environment demands. Many will be using these new productivity tools for the first time, and we suspect that usage will persist well beyond the end of the lockdown period.
For each of these companies, it’s the longer-term opportunity that is important. For companies whose products and services that forge a reputation for resilience in the fire of the coronavirus outbreak, the key benefit will be to emerge stronger, more profitable, and more embedded in our everyday lives. In the meantime, they have a role to play in keeping us safe, productive, and entertained through the dark days that we currently face.
Changing consumer behaviour is difficult. Management teams know that, if they can change consumer behaviour, new habits will die as hard as the old ones that they have fought to overcome. Companies spend vast sums trying to achieve it, using crude tools such as marketing, product placement. Behavioural scientists conceived of “Nudge Theory” as a means to effect behavioural change. The Coronavirus epidemic, and the extraordinary circumstances in which we are now asked to live our lives, has not so much nudged as hurled populations headlong into behavioural change of a magnitude perhaps never previously seen.
Please remember investment involves risk. The value of investments and the income from them can fall as well as rise and investors may not receive back the original amount invested. Past performance is not a guide to future performance.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
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This article was previously published on www.smithandwilliamson.com prior to the launch of Evelyn Partners.