Netflix Stock Is a Sell Because Competition Will Send It to an Early Grave
Competition continues to heat up in the streaming world, and Netflix investors might want to sell now before it's too late. | Source: Shutterstock
As more players in the streaming content world enter the market, life is getting increasingly difficult for Netflix.
Following its merger with AT&T, Warner Bros. will launch WarnerMedia’s streaming service called HBO Max next year. It will include the hit series “Friends,” which will be pulled from Netflix .
This follows Netflix losing “The Office” back to NBCUniversal last month.
The Netflix Ticking Time Bomb
The bad news is piling up for Netflix because soon every studio will have its own streaming service. Eventually, in order to access both original and classic programming, consumers will have to select which services to purchase – because they can’t purchase them all.
This is a bad blow to Netflix, which may no longer be a must-have service.
When Netflix first began streaming content, it had no competition. The studios licensed content to Netflix, and that’s how it grew its subscription base.
Netflix got into original programming because it foresaw a day like the one that’s coming – where studios have their own services. Its original programming is its value proposition, yet its shows have had mixed success. They are either breakout hits like “Stranger Things” or completely overlooked.
Part of the appeal of Netflix was that it has both original programming but also some very popular TV shows from the past. It could serve both sets of consumers. That era is coming to an end, which means Netflix must step up its original programming to stay competitive.
Here Comes Big Bad Disney
That’s not all Netflix has to deal with. Disney announced its own streaming service and plans to pull all of its programming from Netflix as well.
Disney isn’t just any old content provider. It has a library of its own that reaches back decades, tons of TV shows, and all the content associated with Marvel, Pixar, and LucasFilm. That’s a huge blow to Netflix. Disney has such mass appeal that it will almost certainly be a must-have for consumers.
Disney is even more invincible following its merger into Disney/Fox. That pulled in Fox franchises including Avatar, X-Men, Ice Age, Die Hard, Kingsman, Planet of the Apes, Alien, Home Alone, Independence Day, Narnia, 28 Days Later, Predator, Transporter, and The Simpsons.
The Firing Squad Lines Up on Netflix
Also coming down the pike is Apple’s service, not to mention all the existing choices from Amazon, Hulu, and pay-cable services that have long and acclaimed histories like HBO, Showtime, and Starz.
This should be very alarming to NFLX investors who anxiously are awaiting earnings next week. NFLX earned $1.2 billion last year. It currently trades at a market cap of $166 billion, giving it a P/E ratio of 139, which is both insane and unsupportable.
Netflix will be forced to continually raise subscription prices to stay competitive even as it has to continue to borrow billions of dollars to keep making its shows. Instituting ads on shows would also be suicide.
Meanwhile, domestic subscriptions are starting to plateau, leading Netflix to pump more and more money into international advertising, and it isn’t succeeding in some countries, like India.
It will also never be permitted into China because of that country’s protectionist policies regarding content.
Netflix investors might want to sell now.
Disclaimer: This article is intended for informational purposes only and should not be taken as investment advice.
