Netflix Stock Can Grow 30%, Despite Its Streaming Competition

Apple & Disney Enter Streaming Stock Wars

The streaming stock wars have begun. Netflix Inc (NASDAQ:NFLX), Apple Inc. (NASDAQ:AAPL) and Walt Disney Co (NYSE:DIS) are now firmly entrenched in a battle over the eyeballs of viewers the world over.

Netflix stock has been down in recent weeks while Disney stock and Apple stock have surged as both companies launched their own streaming services.

But in my mind, NFLX stock is the best suited for massive growth (at least in the streaming world) long-term, while both DIS stock and AAPL stock stand to gain in the short term.

Before I explain why I believe Netflix stock could be the right way to play the streaming market, we have to understand how we got here.

Netflix was the first streaming giant to make its way to the public stock market. Although it started as a movie and video game delivery service hoping to rival the—at the time—massive Blockbuster empire, Netflix was one of the first companies to enter the online streaming space.

Suffice to say that the Blockbuster business model was, well, thoroughly busted and now Netflix thrives on the screens of viewers around the world.

Netflix Inc was so effective that it spawned a series of copiers. There are currently dozens and dozens of streaming services, big and small, general and niche.

Netflix remains dominant, but other upstarts like “Amazon Prime Video” (run by Amazon.com, Inc (NASDAQ:AMZN)) and “Hulu” (owned by Disney) have challenged it for supremacy.

Note that, while Disney owned Hulu, many of its Star Wars and “Marvel Cinematic Universe” titles were licensed out to Netflix.

Even legacy TV channels have tried to fight back against Netflix with their own streaming services, one of the most successful ones being “HBO Go.”

The streaming market, it’s safe to say, is getting crowded. With Apple and Disney entering the ring, we have reached the next stage of the streaming stock wars.

While there were minor skirmishes before, consider the entry of “Apple TV+” and “Disney Plus” as the true beginning of an all-out fight for viewers between streaming behemoths.

While I believe that all three services can thrive in their own right, most people will likely choose only two or three. Bearing that in mind, one streaming service will inevitably emerge on top. And in my opinion, that victor will be Netflix.

NFLX Stock Prediction

First, let’s take a look at what makes Netflix Inc so special.

Netlix CEO Reed Hastings recently said we’re looking at the streaming business all wrong. While many analysts count subscribers as the main metric when it comes to a streaming service’s success, he said we should look at how viewers spend their time instead. (Source: “Netflix CEO Reed Hastings says subscriber numbers aren’t the right metric to track competition,” CNBC, November 6, 2019.)

“Time will be the real competition,” said Hastings.

“You’ll hear some subscriber numbers but you can just bundle things so that’s not going to be that relevant. So the real measurement will be time — how do consumers vote with their evenings? What mix of all the services do they end up watching?”

That’s an interesting way of looking at things, and partly it’s a hedge. That’s because Hastings knows that Disney and Apple can offer all manner of bundles that can entice viewers. For instance, Apple already offers a free one-year subscription to Apple TV+ with every new purchase of an “iPhone”.

Netflix, on the other hand, can only survive on the strength of its programming. It does not have the luxury of enticing viewers with other goodies. But I don’t think that will matter in the long run.

While the battle for attention will surely be one front in the streaming wars, ultimately, subscribers paying is how a streaming company earns its revenue.

With Netflix, its last quarterly report saw the company deliver strong numbers. Earnings per share hit $1.47, higher than the $1.04 that was expected. This sent Netflix stock soaring. (Source: “Netflix soars 8% after beating on earnings, despite miss on subscribers,” CNBC, October 17, 2019.)

Revenue came in at $5.24 billion, a bit less than the anticipated $5.25 billion.

U.S. paid subscriber additions were 517,000 in the quarter, lower than the expected 802,000. International paid subscriber additions were 6.3 million, compared to the 6.1 million that was expected.

The company projects fourth-quarter earnings of $0.51 per share on revenue of $5.4 billion. The company is also forecasting 7.6 million global net adds for the fourth quarter, compared to 8.8 million in the same quarter one year earlier.

When Netflix Inc’s quarterly report was released, the company had this to say: “Many are focused on the ‘streaming wars,’ but we’ve been competing with streamers (Amazon, YouTube, Hulu) as well as linear TV for over a decade.”

The company added:

The upcoming arrival of services like Disney+, Apple TV+, HBO Max, and Peacock is increased competition, but we are all small compared to linear TV. While the new competitors have some great titles (especially catalog titles), none have the variety, diversity and quality of new original programming that we are producing around the world.

(Source: Ibid)

What Netflix is saying is that it has already been in the streaming wars for years now, only previously, the names of its competitors were relatively unknown. “Seeso,” for example, was hardly a Netflix-slayer. Bigger names have stepped into the ring since then, but the fight remains the same: keep viewers watching and subscribing.

And that brings us to the most important part of the streaming wars. For all the numbers, names, and money being spent on programming, the only thing that’s really going to keep people paying is the content.

Content is king. And Netflix right now is the kingmaker.

Chart courtesy of StockCharts.com

DIS stock and AAPL stock have both gotten a burst in value since their streaming services released, but neither company has a killer show yet.

While Disney stock benefits from having a number of properties under its purview, at the end of the day, the company’s only truly original programming that’s making any sort of buzz right now is a Star Wars television show.

Here’s the thing, though: people have in the past shown that they can suffer from Star Wars fatigue.

Several Star Wars films were put on hold or canned entirely after a few flops at the box office (I say “flops,” although they were still astronomically successful films but did not measure up to Disney’s expectations).

Solo: A Star Wars Story only slightly eclipsed its budget and received lukewarm reviews. The Marvel Cinematic Universe, meanwhile, still enjoys immense support, but there has been fear for years of “superhero fatigue” setting in, akin to what happened with Star Wars.

Give the people what they want, sure, but if you give them so much of what they want that they begin to hate it, well, that’s a problem that Disney has run into in the past.

This isn’t to say those Star Wars or Marvel will ever be totally abandoned, but they are both at risk of not raking in the viewership that Disney projects, which in turn would hurt Disney stock.

Apple TV+, on the other hand, really has no killer show or property under its belt right now. It has buckets of money to rectify that problem, but for now, it simply can’t compete with the likes of Netflix, Disney, Hulu, and “Amazon Prime Video.” Apple is starting the race way behind.

It’s worth noting, however, that both Disney and Apple are looking at streaming services as supplementary to their main businesses (tech in Apple Inc.’s case, and the Disney empire in Walt Disney Co’s case).

Netflix Inc, on the other hand, has to win the streaming wars to stay alive. I believe that necessity will breed ingenuity from Netflix, and I fully expect NFLX stock to eclipse its former high (good for over-30% growth) within the next two years.

Many have been worried for years about Netflix losing market share to Disney and Apple. And now that the day has come, I think that Netflix will prove to be more resilient than investors first thought.

With programs like Stranger Things, The Crown, and House of Cards, the streaming service has proven that it can make culturally resonant content. Landmark TV, even.

That’s far easier said than done, and Netflix has shown that it has the willingness (in terms of dollars spent on these programs) and the foresight to make these success stories happen.

Its movies have also been gaining steam, with many having been huge success (even if critics were less kind to some of its popular ventures).

And then of course you have the fact that Netflix is more free in its content creation. It doesn’t have a brand that needs protecting. Disney and Apple, on the other hand, would be hard pressed to include shows that criticize (and potentially harm) other aspects of their respective businesses.

The freedom that Netflix can exercise in this arena means that it can more effectively compete for viewership versus Disney and Apple.

Not to mention that Netflix Inc is famed for its willingness to take chances on all manner of shows that many other companies wouldn’t look at. That has paid off big-time with surprise hits like Stranger Things.

Overall, Netflix is culturally embedded now as must-see TV for a lot of people. It also has footprints in markets around the globe, meaning that, while growth is likely to slow down as time goes on, the company will have an easier time retaining subscribers.

For all its competition right now, no streaming service has produced a must-see television event that could rival the many works of Netflix. That’s going to be a huge factor in the future of the streaming stock wars.

Netflix stock has the ability to reach its peak in the next year or two as investors become more comfortable with the idea of heavy competition in the streaming space. They’ll likely see Netflix continue to succeed despite challenges, and that will reassure investors, eventually causing them to return to NFLX stock.

I believe we’re going to see big things from Netflix stock in the years to come.

Analyst Take

The streaming stock wars are heating up, but Netflix Inc remains the top dog for a reason. It has a catalog of strong original programming and a number of binge-watchable and rewatchable programs that will keep it going strong for many years to come, no matter which companies seek to challenge it.

While the threats are real, I ultimately believe that Netflix stock will remain strong, despite the newcomers.