Back on February 28th of this year, I put up a post entitled “Should Netflix Still Be a FAANG? The response was quite strong with many people saying that I was commenting way above my pay grade and should stay out of securities analysis (which I did not think that I was doing). Since then, with the collapse of Netflix from $700 per share to a recent low of $162.71 a few people have contacted me and asked how I knew what was going to happen. One called me a seer.
Well, I do not think that I am an idiot as some hinted at and I know for sure that I am not a seer. The share price of Netflix was taken down sharply as in the last quarter their subscriber count actually dropped by two hundred thousand. Disney shares also have been halved over the last year going down with the general market in 2022 but also, likely due to fallout from the Netflix decline.
Here is my take on what is going on:
Streaming video is definitely not finished. This decline in share prices is merely a hiccup or slowdown that generally occurs in many dynamic industries. And, as mentioned in the February post, there is a great deal more competition in the streaming space these days vs. a few years ago when Netflix looked as if they had won the “war.”
Please keep a few things in mind. Netflix’ business model was based on continuous subscriber growth. Many of us loved their programming but they borrowed heavily to produce it and they were not a well- diversified entity.
Think about their competition. Disney + is, at best, one fourth of Disney revenue. They have the theme parks, cruise ships, movie studios, ESPN, Hulu, ABC and many other properties. Apple and Amazon are huge entities that can lose billions in streaming over the next decade and not really feel it. This fall, Thursday Night Football will be a digital only format on Amazon Prime Video. More sporting events are sure to follow on various streaming properties globally.
Yes, at some point soon, Netflix and perhaps Disney + will have a subscription tier with reduced costs if commercials are allowed. I do not think that this will put an end to cable cord-cutting. Netflix is planning to enforce the number of users on a single subscription more rigidly but again, I do not see that as death knell to the service.
There was a time when I thought that Apple or Disney should have purchased Netflix but then the share price put it out range in terms of value. Also, we all remember the time years ago when Netflix approached Blockbuster (remember them ) about an equity arrangement and were rebuffed.
Younger adults across the world love streaming and they are the future of home entertainment. All of us are enjoying the commercial free aspects of most existing streaming services and the content is quite good as well.
Financially, one hindrance to growth may be the lower subscription rates offered in some developing countries, particularly India. Subscriber growth may look robust but revenue not so much.
Cable and over the air TV are in a steady decline. The recent stock market valuations of streaming services will not change that. Growth may be slower especially if Western countries have a recession over the next 24 months, but the future looks solid.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
