Sunday Times E-Edition

Netflix, Peloton hit the brakes as Covid eases

● The pandemic isn’t over yet, but the boom it helped create for stay-at-home stocks appears to be vanishing.

Netflix and Peloton Interactive, two of the highest-profile stars of the lockdown era, both plunged this week — the latest sign that investors are moving on from the so-called pandemic trade.

Netflix expects to add a paltry 2.5-million users in the current quarter, well short of estimates. Peloton, meanwhile, is slashing costs to cope with slowing demand for its stationary bikes.

They became the latest darlings of 2020 to sink to levels not seen since the early days of the Covid outbreak. Others are suffering too. Zoom Video Communications, the owner of the videoconferencing software, is trading at the lowest level since May 2020.

Everyone expected a company like Peloton to suffer a slowdown as it emerged from the pandemic. But the severity came as a surprise.

Peloton cut its 2022 forecast by about $1bn (R15bn) and it is reportedly pausing production of bikes and treadmills to cope with the slump.

On Thursday, the company pushed back on the idea that it was idling factories to save money, but confirmed it was cutting jobs and “resetting” production.

“We thought there could be a softer landing in terms of post-Covid demand,” Paul Golding, an analyst at Macquarie Capital, said in a note. “This dashes those hopes to some extent.”

The irony of pandemic favourites collapsing now is that the Covid threat has by no means subsided, though the resurgence fuelled by the Omicron variant is showing signs of easing.

Netflix and Peloton had enjoyed a captive audience during the lockdowns. But having to hunt harder for customers isn’t the only problem as investors brace for US Federal Reserve interest rate hikes.

Unlike Peloton, which began sliding early in 2021, Netflix had a remarkably swift fall from grace.

The streaming giant, which was trading at a record high just two months ago, has long been a growth juggernaut. Since going public in May 2002, its shares have gained more than 47,000% as quarterly revenue rose from $30m to more than $7.7bn.

Even though the company disappointed investors on Thursday, it still delivered revenue growth of 19% and more than $5bn in profit in 2021.

“The Netflix flywheel is still working — it’s just operating at a slower pace,” said Pivotal Research Group analyst Jeff Wlodarczak. “Over time we expect normalisation in subscriber results and for the stock to work.”

The money flowing out of pandemic stocks is going into some sectors that were among the most ravaged by Covid. Energy stocks in the S&P 500, for example, have gained 15% this year, the best performance among the benchmark’s main groups.

Business What A Week

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2022-01-23T08:00:00.0000000Z

2022-01-23T08:00:00.0000000Z

https://times-e-editions.pressreader.com/article/282205129266752

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