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In the event of a recession, Nomura analysts like Chewy, Amazon, Facebook and Alphabet—but not Netflix.
In a note published Monday, Nomura Instinet looked for lessons from the 2008 recession and concluded that the “continued digital shift” will help internet stocks outperform if we see a recession in the near future. And Nomura frames e-commerce stocks, specifically, as recession-proof.
“Our analysis suggests that e-commerce stocks are among the best to own in such an environment, especially those whose end markets tend to be resistant to economic shocks,” the note says. “We believe Chewy (CHWY)... fits this profile, with pet-care spend actually growing through the 2008 downturn. Amazon (AMZN)... is also well-positioned as a general-purpose retailer. In Digital Media, we would prefer to remain overweight companies with strong balance sheets and dominant market positions, such as Alphabet and Facebook.”
Netflix (NFLX) and Snap (SNAP), Nomura writes, don’t pass the same test—nor does the entire interactive entertainment space.
“We would be cautious regarding cash-flow-negative companies, such as Snap and Netflix, and those companies exposed to cyclical or discretionary end markets, such as ANGI Homeservices [parent company of HomeAdvisor and Angie’s List] and the Interactive Entertainment sector.”
So Nomura is betting that when times are tight, you’ll sooner cut down on digital television than scrimp on your dog’s favorite food.
Indeed, lately it has become popular to question whether Netflix is recession-proof. In 2011, amid the fallout of the 2008 recession, Netflix saw its stock slide 80% and lost a slew of customers. Netflix stock rises and falls mostly based on subscriber additions each quarter. And the assumption is that during a time of financial belt-tightening, Netflix is a discretionary luxury that consumers might cut.
There’s just one big problem with that reasoning: recent surveys suggest Americans are still at a point where they’re willing to add more subscriptions, not cut. And even as their subs pile up, people still feel they’re saving money by cord-cutting.
A 2017 Deloitte report on digital media subscriptions projected that by the end of 2020, half of adults in developed countries will be paying for at least four digital media subscriptions. More interestingly: Deloitte says that by that time, 20% of adults in developed countries will be paying for 10 digital media subscriptions, at a total average spend of over $100 per month.
In other words: the current average number of streaming subscriptions per person is going to go up before it levels off or declines.