The streaming wars are heating up, but Netflix isn’t going anywhere
Insiders doubt new entrants like Apple will be able to topple original innovator
Apple Inc. may have fired the latest shot in the video streaming wars with the announcement of a new service coming later this year, but analysts and money managers appear skeptical that the Cupertino, Calif.-based tech giant and other new entrants in the space will be able to dethrone industry giant Netflix Inc. any time soon.
At Apple’s annual fall keynote, Apple CEO Tim Cook surprised consumers by unveiling that Apple TV+, which is set to launch on Nov. 1 in the U.S. and Canada, will only cost US$4.99 per month — well below the US$10 range most were expecting. For consumers who purchase an Apple device, a free oneyear subscription will be included.
Investors have reacted positively to Apple’s plan, with shares up more than four per cent since the announcement.
Similarly, shares of Walt Disney Co. surged to an all-time high in April after the company announced that it, too, was launching a streaming service, Disney+.
The newcomers’ gains have come as Netflix has lost nearly a quarter of its value since reaching a 52-week high earlier this year.
While investors might take these developments as a sign that Netflix is under siege, those who closely follow the space seem to suggest otherwise.
“I don’t think anyone could possibly dethrone Netflix,” said Horizons ETFs portfolio manager Hans Albrecht, who runs two funds that are made up of tech stocks. “I think this is a buying opportunity for Netflix.”
Given the wealth of third-party and original content available on Netflix, Albrecht doesn’t see the potential for large groups of subscribers to leave the service in favour of Disney+, Apple TV+, Amazon.com Inc.’s Amazon Prime Video or any other competitors ready to spring into the market place.
Instead, he sees subscribers treating Netflix like basic cable and adding one or two of the other streaming services to complement it like they would with specialty cable packages.
“The way I see it, (Netflix’s competitors) are all competing for second, third and fourth,” Albrecht said.
A recent Bank of America note supports Albrecht’s thinking. In a note to investors, a group of analysts led by Nat Schindler referred to Apple TV+ as “no substitute” for Netflix, calling the latter’s position “secure” due to having several years of a head start over its new rivals.
Disney+, which is set to launch in November for US$6.99 per month, will likely cement itself as the second option because its vast libraries will allow it to pull content from Marvel, Star Wars, Pixar, National Geographic and Twentieth-Century Fox archives, Albrecht said.
What investors navigating the streaming wars need to decide is whether most of the potential value of Disney+ is already baked into Disney’s stock. Should the launch be as successful as it’s projected to be, Albrecht only sees room for an additional 10 per cent upward move.
Kaan Yigit, a technology analyst at Solutions Research Group, suggests the streaming wars may not have much of an impact on the stocks of Amazon, Disney and Apple in the short-term because the streaming businesses of those companies will initially only make up a small percentage of their total businesses.
Apple and Disney’s smaller streaming exposure could also be beneficial to investors should either one outperform out of the gate, Needham analyst Laura Martin added. Although their streaming businesses have shown they have the ability to move their stocks, the companies can use their massive free cash flow stores to protect themselves on the downside.
“Those core businesses have really big free cash flow streams and those balance sheets or free cash flow allows them to have losses in this new over-the-top startup business for a lot longer than Netflix can because Netflix doesn’t have a sister subsidiary making money that can subsidize losses in the over-the-top business,” Martin said.
Netflix is different — it’s wholly known as a streaming business and its stock performance will remain linked to how it performs against its new competitors.
That may very well mean that investors will have to deal with further volatility in the name — at least in the short-term — Yigit said. And when investors see that it’s not bleeding subscribers while continuing to release original content that connects with subscribers and industry reviews alike in 2020, the stock should regain momentum.
It shouldn’t take long for investors who shed the stock in the past months to come to that realization, Albrecht said.
“Over the next year, I think people realize (Netflix) is the gorilla of the group,” Albrecht said.
I don’t think anyone could possibly dethrone Netflix.
I think this is a buying opportunity for Netflix.