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Coronavirus: The 'stay-at-home' businesses defying the sell-off

  • The Coronavirus sell-off has been so sudden that the S&P500 has suffered its fastest ever correction

  • Stay-at-home businesses such as Netflix have evaded the sell-off

  • EM e-commerce players may be revalued

Nirgunan Tiruchelvam
Nirgunan Tiruchelvam

Head of Consumers Equity Research

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Tellimer Research
2 March 2020
Published byTellimer Research

There is an eerie timing to Pandemic – a documentary series that is now streaming on Netflix. The six-part series looks at medical practitioners preparing for an unavoidable flu pandemic. Pandemic is going viral on Netflix!

The irony is that the Netflix stock is a rare outlier in the market sell-off that has followed the global spread of the virus. The S&P 500 has suffered its fastest ever correction and is down 11% in the past 10 days. The sell-off has been so brutal that even gold, a traditional haven, has fallen in recent days.

A rare ray of light are the stay-at-home businesses such as home entertainment, social media and e-commerce. They are well placed in the current circumstances, as many companies and government bodies are requiring their employees to work from home. 

Netflix has outperformed the NASDAQ by 8% in the past 10 days. Other stay-at-home players such as Amazon, Facebook, Peloton and Slack have also outperformed. 

 

Figure 1: 'Stay-at-home' stocks outperforming in Coronavirus sell-off 

Source: Bloomberg

 

In EM, e-commerce has averted the worst of carnage, and may receive a shot in the arm as people become accustomed to e-commerce as part of their lifestyle and make the shift permanent.

Figure 2: EM e-commerce less hit than broader EM & FM

Source: Bloomberg

We urge investors to exercise the following criteria when evaluating consumer stocks:

1. Our Cash Sustainability Index (CSI) identifies companies that are cash-generative in the sector (see our methodology here). We think these should outperform, irrespective of the virus. The market is less forgiving of companies that bleed cash. The collapse in Jumia (JM US, Sell, TP US$4.0) after its IPO is a case in point.

Table 1: Cash Sustainability Index (CSI)


BABA US Equity

42.2

EBAY US Equity

37.3

MELI US Equity

20.8

CTRP US Equity

17.2

AMZN US Equity

7.8

BOO LN Equity

8.1

MAN FP Equity

6.4

ASC LN Equity

5.6

SHP SJ Equity

4.3

DUST SS Equity

3.9

DPEU LN Equity

2.9

PIK SJ Equity

2.7

ZAL GR Equity

2.7

CNV FP Equity

-5.0

MMYT US Equity

-14.5

FTCH US Equity

-19.3

3690 HK Equity

-37.1

SE UA Equity

-44.5

JMIA US Equity

-74.5

Source: Tellimer

2. Companies where e-commerce is a viable alternative to traditional retail are on a sound footing. These include BABA US and SE UA (both Not Rated). In markets where e-commerce is peripheral such as Africa, the e-commerce stocks are less likely to see an improvement.

3. E-commerce may be viewed as a haven, but a tighter funding environment may curtail the upside. The market for EM e-commerce equity funding could weaken in this environment.

4. The 'stay-at-home' trend could improve the sales of EM e-commerce players such as BABA US and SE UA in the long term, as well as the short term. Indeed, this trend could outlive the virus, as people become accustomed to a higher degree of e-commerce and make the shift permanent.