The Covid-19 pandemic is not over yet, but the boom it helped create stocks to stay at home is disappearing.
Netflix Inc. and Peloton Interactive Inc., two of the most famous stars of the blockade era, both fell on Thursday – the latest sign that investors have moved out of the so-called pandemic trade. Netflix expects to add a paltry 2.5 million users in the current quarter, which is well below forecasts. Meanwhile, Peloton is cutting costs to deal with the slowdown in demand for its stationary bikes.
Shares of Netflix fell as much as 23% on Friday, the biggest drop since October 2014. Shares of Peloton rose as much as 10%, reversing part of the fall on Thursday.
The two companies are the newest favorites of 2020, sinking to levels never seen since the first days of the Covid-19 outbreak, when investors first concluded that the blockade and easy money policies from the Federal Reserve would lead to a rise in shares like Netflix.
Others also suffer. Zoom Video Communications Inc., owner of the ubiquitous video conferencing software, is trading at its lowest level since May 2020, as is electronic signature company DocuSign Inc. Both stocks lost more than half of their market values from record highs and fell further after the results of Netflix. Etsy Inc., an e-commerce company that saw strong pandemic demand for face masks and other products, fell more than 45 percent from its peak in November. It closed on Thursday at its lowest level since May.
Traditional media companies, which are emerging as streaming businesses, also received a hit on Friday. This includes Walt Disney Co. and ViacomCBS Inc.
Everyone expected a company like Peloton to slow down when it came out of the pandemic. But the weight of it came as a surprise. Peloton cut its forecast for 2022 by about $ 1 billion and reportedly stopped production of bicycles and treadmills to cope with the decline. Late Thursday, the company rejected the idea that factories were not working to save money, but confirmed that Peloton was cutting jobs and “resetting” production.
“We thought there might be a softer landing in terms of demand after Covid,” said Paul Golding, an analyst at Macquarie Capital. “It kind of shatters those hopes.”
The irony of the pandemic favorites that are falling apart now is that the threat of Covid-19 has by no means subsided, and many areas are once again imposing virtual training and even blocking. But the revival, fueled by the omicron variant, is showing signs of relief.
Netflix and Peloton enjoyed captivating audiences during the blockade. But the need to look harder for customers is not the only problem as investors prepare to raise Federal Reserve interest rates.
Unlike Peloton, which began sliding in early 2021, Netflix had a remarkably rapid fall in grace. The streaming giant traded at a record high just two months ago.
Of course, a company like Netflix doesn’t need a global pandemic to thrive in the long run. The streaming service has long been a giant growth. Since it went public in May 2002, its shares have risen more than 47,000 percent as quarterly revenue has risen from $ 30 million to more than $ 7.7 billion.
Although the Los Gatos, California-based company disappointed investors on Thursday, it still secured revenue growth of 19% and profits of over $ 5 billion in 2021.
“The Netflix flywheel is still working – it’s just working at a slower pace,” said Pivotal Research Group analyst Jeff Wlodarczak. “Over time, we expect normalization of results for subscribers and promotions to work.”
The money flowing from pandemic stocks goes to some sectors that were among the most devastated by Covid. Energy stocks in the S&P 500, for example, have gained more than 10% this year, the best performance among the main groups of the benchmark.
Another question is what this means for the rest of the technology world, including companies less attached to the vagaries of the pandemic. They are already facing a slowdown in profit growth and pressure on estimates. The Nasdaq 100 stock index fell 10% this month, the worst since 2008.
Netflix numbers will get more context when technology giants like Microsoft Corp. and Apple Inc. present their quarterly results next week.
“Get ready, these results overshadow the rest of the technology,” said Loup Ventures co-founder Gene Munster. “Until Apple reports and hears from the Fed, the technology market will be on the brink.