Post-Covid Massacre: Netflix and Zoom
Investigating the rise and fall of two Covid sweethearts
Both Netflix and Zoom exploded when the Covid bombshell dropped. For a short while, they had what we call a negative beta, meaning they had a negative correlation with the rest of the market: as the economy went down, these assets actually go up. The worlds most famous negative beta asset is of course gold, as investors always flock to it in times of uncertainty.
The figures above illustrate the severity of the stock market. Netflix reached its peak in November 2021, before crashing by roughly 75%. Zooms crash and burn was even more severe, dumping by roughly 86% from its Covid high. Both of these shares are now trading below their pre-covid levels.
Why the rise and fall?
For the sake of time, well keep it simple. After all, time is money, and after investing in these two stocks you probably dont have much of it left. Lets investigate the two main culprits:
- People staying at home, and
1. People staying at home
Covid has changed the way the world works forever. One might argue that the move to a more digitalized working society was going to happen anyway. I agree, of course, but Covid had shifted the timeline earlier by probably about 10-15 years than what would have been if we stayed the course.
In March 2020, people across the globe were forced inside for what was labelled as lockdown. In South Africa, our three-week lockdown extended to almost two years before things sort of returned back to normal.
So what do people do when they cant go outside and spend money on recreational activities? Well, as they say, Netflix and chill.
On the communication side of things, chaos hit as company structures had to change in a matter of weeks. Before we knew it, people were fully operational from home. General communication, meetings, and learning had all shifted online - mostly to Zoom.
And now? Are things back to normal? Well, pretty much. Sure, people still stream movies and use online platforms to communicate, but not as much as they used to in the peak Covid era. And even if they did, a second point of failure was lurking in the shadows: Competition.
A few months into lockdown, one thing became abundantly clear - Covid is not going away. Except for the odd bailout or two, companies had to sink or swim. It was only a matter of time before corporates started venturing into this new sphere of digital infrastructure.
Zoom had to make space for platforms such as Microsoft Teams and Google Meets. Netflix, on the other hand, had to compete with platforms such as Disney+, Amazon prime, and Apple TV. Before we knew it, these two Covid sweethearts had started losing significant market share.
On 20 August 2022, Disney announced that it had surpassed Netflix in subscribers, totalling 221 million subscribers compared to Netflixs 220 million.
There are a few lessons to be learned here:
1, The bigger the problem, the greater the opportunity
2. Never ever get complacent. Always keep innovating. Where there are profits to be made, competition will always be fierce.
3. As an investor, time in the market almost always beats timing the market. But it does not have to be mutually exclusive. Taking advantage of trends and/or short-term opportunities can make a massive difference. Examples include:
- Investing in any assets after the covid crash
- Investing in assets such as Netflix and Zoom that were well-positioned to take advantage of the Covid lockdowns.
- Investing in commodities when Russia invaded Ukraine
- Crypto arbitrage when margins were still attractive