Streaming video is big business, and getting bigger all the time. Revenue in the industry is expected to amount to $25.9 billion this year, growing at a compound annual growth rate (CAGR) of 4.1% and topping $30.4 billion by 2024, according to market and consumer data provider Statista.
Netflix (NASDAQ: NFLX) is by far the biggest player in the streaming space, with more than 167 million subscribers worldwide, and generating more than $20 billion in revenue in 2019. Those numbers are only expected to grow, as Netflix expects to add another 7 million subscribers in the first quarter alone.
Data provided by one analyst shows that the company may exceed expectations in the second quarter, due to the impact of the COVID-19 coronavirus outbreak.
A boost from coronavirus
Analyst Michael Olson of Piper Sandler released the preliminary results of its quarterly "Netflix Navigator," a tool which analyzes search trends for Netflix on Alphabet's Google search, in an attempt to gauge the tenuous connection between consumer interest and estimated subscriber growth.
Olson's research found an increasing trend during the first two months of the quarter, which shows that Wall Street may be seriously underestimating the number of consumers signing up for Netflix. The data suggests that Netflix subscribers in the U.S. and Canada -- a segment the company now calls UCAN -- will grow 3.8% year over year, more than double analysts' consensus estimates, which are calling for growth of 1.6%. International projections may also be too low, as the data predicts that international subscribers will grow 30.9% compared to the prior-year quarter, ahead of expectations for growth of 29.9%.
It's important to note that the tool isn't perfect, but Olson points out that its analysis has been "directionally accurate" in each of the past seven quarters regarding UCAN growth, and six of the past seven quarters at forecasting international subscriber trends.
"Despite the launch of new streaming services, Netflix continues to capture a significant portion of traditional content consumption dollars as that spend migrates to streaming," Olson wrote. "Additionally, with coronavirus fears pushing consumers away from travel and out-of-home entertainment, Netflix could be a near-term beneficiary of this temporarily altered behavior."
Impervious to coronavirus
Olson isn't the only analyst that thinks Netflix stands to benefit from the epidemic. Imperial Capital analyst David Miller said the company is best positioned to benefit from the "cocooning" effect, as fear surrounding the coronavirus outbreak has more consumers forgoing travel plans and large crowds, and riding out the outbreak at home.
"We are boosting our anticipated subscribership numbers for Netflix's first quarter, primarily due to what we believe is a 'cocooning' effect at hand due to fears surrounding the coronavirus," he wrote in a note to clients this week. "Not only is Netflix's service impervious to the effects of the virus, but because the price is so low, it is impervious to any derivative recessionary effects that may arise as a result," Miller said.
Miller now expects Netflix to add 510,000 subscribers in the UCAN market and 7 million international subscribers, bringing the first quarter total to 7.5 million, significantly higher than Netflix's forecast.
Time will tell
Investors are seeing the effect of coronavirus at every turn. The disease has infected more than 97,000 people around the globe, causing more than 3,300 fatalities. Major events are being canceled and technology companies are asking employees to work from home whenever possible.
Given the warnings by health officials and ongoing battery of negative headlines, it's only natural that consumers would seek refuge indoors, allowing the companies that cater to that dynamic to reap the benefits.
Is it any surprise that viewers would simply choose to stay home to Netflix and chill?
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Alphabet (A shares) and Netflix. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Netflix. The Motley Fool has a disclosure policy.
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