Netflix CEO Recognizes Competitive Threat, Stock Takes a Hit

Netflix NFLX shares dropped more than 5% to close at $270.75 on Sep 20, following CEO Reed Hastings' acknowledgement that competition will intensify in the streaming space post the launch of services from Apple AAPL and Disney DIS in November.

In the latest interview with Variety, Hastings also cited NBCUniversal’s Peacock service as a potential challenger. He further pointed at Amazon’s AMZN initiatives as it is gearing up to improve presence in the streaming space through its Prime video service.

Meanwhile, bearish comments by Evercore analysts, cited by a CNBC article, related to the company’s international app download trend, also hurt shares.

Notably, Netflix has returned 1.2% year to date, worst among the FAANG group, primarily reflecting slowing prospects amid rising competition in the streaming space. The S&P 500 has rallied 17.9% over the same period.

Year-to-Date Performance

 

Netflix Banks on Content Strength & Binge Viewing

Netflix plans to counter rising competition on the back of its robust content portfolio and binge viewing. The streaming giant is estimated to spend $15 billion this year on content compared with $12 billion in 2018.

The massive spending and focus on making content more engaging were primarily responsible for the company’s solid run at Emmy awards this year. Netflix won 27 Emmy awards, trailing only HBO, which grabbed 34 owing to its hugely popular Game of Thrones. Notably, last year, Netflix-HBO had tied at 23.

The company’s Black Mirror: Bandersnatch won an Emmy for “Outstanding Television Movie”, beating Amazon Prime’s King Lear and HBO’s Brexit, Deadwood: The Movie and My Dinner With Herve.

Notably, Netflix blamed weak content slate for lower subscriber growth in the last reported quarter. Further, the loss of streaming rights of Friends and The Office to WarnerMedia’s HBO Max and NBCUniversal was a major setback.

However, the company has reportedly acquired the streaming rights of Emmy-award winning comedy Seinfeld from its distributor Sony for five years beginning 2021.

Moreover, Netflix recently signed a multi-year deal with television writer-producers, David Benioff and D.B. Weiss, the names behind Game of Thrones, for creating movies and series.

Price War: Major Concern for Netflix

Netflix missed its subscriber addition target in the last reported quarter primarily due to a price hike. In the United States, the company lost roughly 130,000 paid subscribers against management’s expectation of growth of 0.3 million.

The company’s standard plan now costs $9 a month, with only one available stream. For $13 per month, users can get HD streaming and two simultaneous streams. For $16 a month, users can avail 4K streaming and four simultaneous streams. Per The Guardian, cited by The Verge, the company has also raised prices in the U.K.

However, the price war that is set to intensify with the launch of Apple TV+ and Disney+ doesn’t bode well for Netflix investors.

Notably, Apple TV+ will launch in more than 100 countries on Nov 1. The service will be available on the Apple TV app on iPhone, iPad, Apple TV and other platforms for $4.99 a month.

Further, Disney is set to launch (November 12) Disney+ at $6.99 a month and a Disney+, ESPN+ and Hulu bundle for $12.99 a month. Per a CNET article, Disney+ will offer users four simultaneous streams, including videos with 4K, UHD and HD picture quality and seven different user profiles at no extra cost.

The aggressive price war along with rising production costs is a concern for Netflix. Notably, the company’s streaming content obligations were $18.5 billion as of Jun 30.

Netflix currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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