Netflix Stock – Fairytale events bounceback within reach
- Disney theme parks move closer to re-opening in US, stymying losses
- Transition out of lockdown should breathe life into London’s events companies
Not much will capture the sheer joy of finally returning back to normal times better than riding a roller coaster. For Californians, that thrill is within reach again, now that its public health department has said theme parks, as well as outdoor sport stadiums, can begin to reopen from the beginning of April.
There are some caveats: the re-openings will require significantly reduced capacity, mandatory masks and ‘other public health precautions’, and the number of people allowed in the parks depends on the number of Covid-19 cases in the relevant counties. In Disneyland’s Orange County, the government is still enforcing the highest-risk ‘purple’ tier, but local news reports suggest it may move down to the red tier, which will allow it to operate at 15 per cent capacity.
This is not much – but was still enough to make Walt Disney (US:DIS) shares pop last week, moving up 6.2 per cent on the news. It is little wonder why: its huge parks business, which span the US, Europe and Asia, is hugely expensive to run. And with most sites closed over the past year, or at the very best (outside of China) running at extremely limited capacity, this has strained the media giant’s ability to turn a profit. In its third quarter of 2020, ending 27 June, the group posted a whopping $4.5bn net loss.
California is not the only state making a slow return to normal. With President Joe Biden’s ambitious pledge that all American adults will be offered the vaccine by May, other industries are also gearing up for a grand re-opening. New York has already started to partly open up its cinema theatres, in a welcome move for production studios on the west coast.
The road out of lockdown is starting to look clearer on our own shores, too. When Prime Minister Boris Johnson outlined the transition back to normal, the market breathed some life back into London’s listed events companies.
Shares in Hyve (HYVE), which hosts industry events and conferences, appear to have started to stage a comeback, although they are still trading well below their pre-pandemic high of 618p in January last year. No doubt that the market is cautious – especially as there is still a great deal of uncertainty around the group’s event schedule in the coming months. Hyve has advertised its key electrical engineering event in Berlin as open and live, although the sluggish pace of the vaccine rollout in Europe could stop it in its tracks.
Management at B2B media group Ascential (ASCL) has similarly warned that vaccines will be critical to its recovery, after it revealed this week that a £130m blow to its events revenue pushed it to a £167m operating loss in 2020.
Compare that to Relx (REL), whose events division forms part of a wider, more diverse portfolio of media businesses. Lockdowns have not posed an existential threat to the company: despite events revenues nosediving 70 per cent in 2020, the group still limited the overall drop in adjusted operating profits to 17 per cent, to £2.1bn.
Meanwhile at Disney, the market does not seem to mind that theme park closures have pushed it to multi-billion dollar losses. In fact, the stock hit an all-time high of $201.91 last week. Instead, investors have been distracted by the great numbers coming out of its new streaming service Disney+, which this month reached 100m subscribers – or half what Netflix (US:NFLX) has achieved over the past decade, within just two years.
Disney is one of the few companies in the world that can stomach such massive losses – but a move back into the black will be welcome. Cinema re-openings are good news for its media division too.
But even before the pandemic, the average North American went to the cinema fewer than four times in a year, according to the Motion Picture Association. With the wider adoption of streaming services, it is not clear yet whether people will rush back to the big screen. Or, indeed, if Disney will be as motivated to share all of their content with cinema chains when exclusive access to films could help the competitiveness of Disney+.
Either way, the revitalisation of our social lives can only be good news for these stocks. The pace of recovery will vary across different markets – and judging by current vaccine progress, we would favour companies that host events primarily in the US and the UK, at least in the west.
But investors should be wary that the months ahead could be rocky. Event organisations that are wrapped up in other complementary media businesses look like the safest way to play the recovery.