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Netflix slides after hitting record high this week amid coronavirus

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Yahoo Finance's Alexandra Canal breaks down how the coronavirus is impacting streaming, traditional media and movie theaters.

Video Transcript

- Right now, we are watching Netflix shares moving to the downside after hitting all-time highs yesterday. Trading right now at about $420 a share, off by about 4%. Of course, earlier today we got the update from Benchmark analyst Matthew Harrigan coming out with a sell rating, initiating Netflix with a sell rating and a one-year price target of $327 a share. That would be roughly 25% below for shares trading now.

Of course, there are a lot of people out there saying that Netflix will continue to benefit from the coronavirus lockdown if streamers continue to turn to the streaming giant. I want to bring on Alexandra Canal in our "Fame and Fortune" segment today to dig into that. And Ali, I mean, the way that we've seen Netflix grow in this, clearly it has caught a boost off of that thesis.

ALEXANDRA CANAL: Oh, definitely. And as Americans remain stuck inside, the one thing that hasn't gone away is that desire for content. Now, you mentioned Netflix hitting all-time highs yesterday. At one point, it even surpassed Disney's market cap. It did dip a little bit today, but it's been on a record tear. And it just illustrates how people are really craving streaming right now, and they're capitalizing on all of that momentum.

There was a new note from Credit Suisse out earlier this week that highlighted how the coronavirus is impacting streamers, as well as traditional media. And they did point out that Netflix is in a very unique position. Number one, like the rest of Hollywood, they've had to halt production, which has freed up a lot of their cash flow. And number two, they still have a steady stream of income and revenue coming in due to all this uptick in subscriber numbers. So all of that coupled with the fact that they have a wide range of content and high purchasing power is going to help them keep costs down once production does resume.

Now, as for traditional media, they are going to have to revamp their workflow. That could include lessening the amount of episodes in a singular season, cutting high-cost projects, and modernizing their post-production technology. This could be a good thing because Hollywood is notorious for being slow to adapt that cloud-based technology that really helps with efficiency.

So this could be the event that pushes the industry to do that. But overall, expected additional costs related to shutting down production, restarting things again could range anywhere from an extra 10% to 75% of overall budget. So there's a lot of different scenarios that could happen here, and certainly a lot of money is at stake.

- Yeah, a lot of money is at stake for sure, but when we look at where else consumers can turn to for entertainment, there's not much else outside of streaming, at least in terms of actually watching these things, because right now, theaters aren't allowing people to go visit there. But we did get an update from President Trump in terms of what those reopening plans would look like, specifically for theaters and restaurants and the like, once we get to certain stages.

There are three phases in his plan. Phase one would include restaurants and theaters reopening if they observe strict social distancing. I'm not entirely sure how that would play out in a theater that's normally packed, especially for some of these more exciting titles, but at least it seems, if some state start to reach this phase one reopenings by May, that theaters could potentially come back online.

ALEXANDRA CANAL: Right. And I think it's more likely to think that this is going to be a phase two plan. President Trump did include that in his remarks yesterday on reopening the economy. Now, Hollywood expects theaters to be reopening by the end of June, early July. Of course, that's ultimately going to be up to the discretion of local and state government officials. As you mentioned, there will be social distancing protocols in place, such as capping capacity at 50%, also maybe rearranging seating so that people aren't crowded in the cinema.

But personally, I think July is just a little too soon. I don't think people are going to feel fully comfortable going back to theaters at this time. So studios are really going to have to be strategic on when they decide to release certain blockbusters. I was surprised to see that Disney chose-- is choosing to release "Mulan" at the end of July. That's a big budget film for them, $200 million. They are hoping it does well. We'll see if things change as we get a little bit closer.

But one thing that is for sure is the industry is kind of grasping for straws right now. They're in a very difficult position. According to Wedbush, the 2020 box office is expected to fall 40% compared to last year, bringing in a total ticket sale haul of an estimated $6.6 billion. And just to put that number in perspective, the last time the box office was that low was in 1998, when it brought in $9.7 billion.

- Yeah, and when we look at one of the newest films that come out, "Troll World Tour" was another one that I think a lot of people were watching to see how that one was going to do in terms of some of these VOD premieres in kind of the new age that we're in right now. And I think a lot of people are not sure what's going to happen down the road. But I guess, you know, if "World Tour Trolls" can do it, anybody can do it.

ALEXANDRA CANAL: Perhaps, yeah. Some movies are just totally skipping that theatrical release date. I don't see that happening for some of the bigger blockbusters we have coming down the pipeline, but again, it's this wait and see approach.

- All right. Alexandra Canal bringing us the latest on that front.