Of all the price capitulations in 2022, the crash in Netflix stock takes some beating. The streaming giant has seen its value plummet by almost 70% year-to-date as investors have been spooked by a small (but meaningful) dip in subscribers.
The question I’ve been pondering is whether some of Netflix’s biggest rivals could be next to fall. Consequently, I was interested to read the thoughts of Peter Garnry – Head of Equity Strategy at Saxo Markets.
Can Netflix stock recover?
Commenting on Netflix, Garnry reflected that it needed to produce “bigger and better content” away from the flagship shows as soon as possible. Without it, rivals have a chance to vacuum up previously loyal subscribers.
Of course, Netflix isn’t going to take a drop in popularity lying down. One option, touched on by Garnry (and already mentioned by the company itself), would be to introduce adverts to the platform.
I can see how this might work. For a lower monthly fee, viewers would be asked to watch a number of ads before being allowed access to their programme of choice. This might succeed in helping subscriptions to rebound.
Another potentially lucrative route is to go down is to add game streaming to its armoury. After all, the video games market is bigger than both film and music combined. Done right, this could potentially help Netflix stock recover from what’s been a truly awful last 10 months, or so.
However, it’s Garnry’s last comment that really caught my eye: “In years to come, this stale feeling towards Netflix is likely to hit other streaming services as budgets and projections are tightened by demand. So it may not be too long until the likes of Amazon, Apple TV and Disney+ find themselves following suit and exploring new realms to entertain their audiences.“
So should I be avoiding the rivals too?
Sell the streamers?
It’s a tricky one. I can certainly see reasons for agreeing with this view. Having become one of the main ways to pass time over the multiple pandemic-related lockdowns, many consumers are likely to feel ‘streamed-out’. On a purely anecdotal basis, the sheer amount of content now available makes it harder for me to commit to a specific programme. As a result, nothing is watched — a consequence known as the paradox of choice.
Then again, one major argument for buying/holding Netflix’s rivals is that they already have other ways of making money. Apple has multiple ‘must have’ devices. Disney has its theme parks. Amazon has its web services and retail divisions.
This doesn’t mean their share prices won’t fall further from here, of course. Concerns over the global economy could prevent growth stocks from rediscovering their mojo for a while.
Opportunity knocks
I’ll hold my hands up. I was initially bullish on Netflix’s ability to bounce back to form. However, developments since then have tainted the investment case for me, at least for now.
While revenue is expected to grow 9% in 2022, I’d need to see evidence that the company is grasping the nettle and doing what is necessary to steady subscription numbers.
Due to their already-established multiple earnings streams, I’d be more likely to buy Amazon, Apple or Disney today. The shares are down 32%, 19% and 38% respectively this year!