Why Netflix May Become A Safe Haven As Techs Plunge On Trade War

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Why Netflix May Become A Safe Haven As Techs Plunge On Trade War

Netflix Inc. (NFLX), which has limited exposure to China, might emerge as a surprise safe haven of the US-China trade war, outperforming several tech equities. One reason is because the on-demand streaming behemoth is quickly expanding outside of China, including India, the world’s second most populous country. This is now cushioning the stock and may make it even more appealing if the trade conflict continues.

Netflix is still up 32% this year, way ahead of the major indexes and most of its fellow FAANG member stocks. The streaming giant is one reason that investors have not completely abandoned tech stocks even as they have bulked up on defense, utilities, real estate and staples amid the trade tensions, according to Barron’s, which says investors appear to still like tech, but not hardware tech companies. As a result, Netflix has held up relatively well while hardware stocks exposed to China, such as Apple (AAPL) and chip stocks (SOXX), including Broadcom Inc., have plummeted dramatically (AVGO).

Netflix Vs. Hardware Stocks

(% Fall From 2019 highs)

  • Netflix -9%
  • Apple -15%
  • Broadcom -18%
  • Chip Stocks – 17%

Source: Investopedia

Rapid Global Growth

To be sure, Netflix’s stock has pulled back this spring on more than trade concerns. The company is facing the prospect of heated competition in the streaming space, with Apple announcing its own subscription service earlier this year and other deep pocketed companies like Walt Disney Co. (DIS) and Amazon.com Inc. (AMZN) adding content.

But Netflix is positioned for global growth perhaps better than any rival. Imperial Capital analyst David Miller, who rates Netflix stock at outperform, notes that its programming created in foreign markets is working to lift viewership both abroad and in the U.S. “Too many media investors think of Netflix’s international business as simply U.S. content that is dubbed in various foreign languages, but in many cases the inverse of that is starting to take hold,” wrote Miller. This means that while Netflix stock has defensive appeal in the short term, it also offers growth. Miller expects Netflix to gain near 32% to $463.

  Why a U.S./China Trade Deal May Be a Sell Signal

Asia Viewers

Netflix also is making headway in India, the world’s second most populous nation with more than 1.3 billion people, four times bigger than the U.S. and not far behind No. 1 China. In India, Netflix now has 20 local language original films and 12 original series produced in the subcontinent, per Marketwatch.

Looking Ahead

The streaming giant also is expanding its footprint in Japan, where it has reportedly moved into fifth place and “appears on track to continue surging, says RBC Capital Markets analyst Mark Mahaney, per MarketWatch. His price price target for Netflix is $480, a 37% gain from today.

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