Best and Worst Internet Stock Plays During the Coronavirus Outbreak

RBC Capital Markets explains which Internet stocks are best and worst positioned to weather economic disruptions associated with the pandemic.
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These are nothing if not uncertain times, but there are better bets than others when it comes to Internet stocks. 

That's according to a team of analysts at RBC Capital Markets, who published a note on Monday covering how various Internet stocks are likely to fare in the coronavirus crisis, which has battered markets and upended operations for a growing proportion of businesses. 

The Dow Jones closed down nearly 13%, or nearly 3000, on Monday in the worst single-day decline since 1987. 

RBC has cut estimates for most of the large-cap Internet stocks it covers, wrote the bank, although some will be more severely impacted than others by COVID-19-related supply and demand disruptions, as well as any economic recession that follows. The bank forecasts -1.0% GDP decline year-over-year for the second quarter. 

Travel-related Internet firms, namely Expedia  (EXPE) - Get Report, TripAdvisor  (TRIP) - Get Report and Booking Holdings  (BKNG) - Get Report, will be among the most negatively impacted, according to RBC. Alibaba  (BABA) - Get Report also falls into this category, given its reliance on core commerce and supply chains in China.

Investors seeking relative stability throughout the pandemic, and any subsequent recession, can look to Amazon  (AMZN) - Get Report, Netflix  (NFLX) - Get Report, Chewy  (CHWY) - Get Report and Spotify  (SPOT) - Get Report, according to RBC. 

The bank notes that Amazon maintained consistent revenue growth during the 2008 recession, and that its retail sales have shifted away from discretionary spending and more towards sales of consumer staples that would likely hold up better in a downturn. 

As for Netflix, more people are staying home during the outbreak -- but it's the company's "high-value, low-cost value proposition and subscription-based model" that should set it up for a relatively stable revenue stream, wrote RBC. 

Historical trends point to resilience for Chewy, which sells subscription-based pet food and supplies -- another spending category that's proved resilient in economic downturns: "In 2010, according to the U.S. Bureau of Labor Statistics, consumer spend declined across entertainment (-7.0%), food (-3.8%), housing (-2.0%), and apparel (-1.4%), while pet spend growth was unfazed at +6.2%," RBC notes. 

Finally, Spotify's revenue could hold up fine in a downtown, according to the bank. More consumers may opt to stay in and stream, rather than pursue outdoor activities, and RBC notes that Spotify has well outperformed the S&P 500 index since the coronavirus crisis began.