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Forget the hype: 6 headwinds to Netflix’s growth that you neglected

Netflix (NFLX) stock has been trading at a yearly high after a June-end report stated that the cable-killer could see an increase in US subscriber base. Research firm Bernstein had last month stated that it expects Netflix to achieve 90 million subscribers in the US in less than 10 years, compared to its current 57 million customers. Despite this positivity, Netflix will likely face six headwinds that might hinder its growth and dominance in the streaming market.

  • A combined AT&T (T) and Time Warner (TWX) is a threat to Netflix. Last month, AT&T closed its purchase of Time Warner for $85.4 billion. Netflix could face stiffer competition from AT&T, which plans to spend more money to boost HBO’s content as well as improve its audience base. Although HBO hit a milestone of 40 million subscribers in the US and 142 million worldwide in 2017, AT&T hopes to improve its US subscriber base further in the coming years.

Related: HBO faces ‘Game of Changes’ under AT&T

  • Walt Disney (DIS) has renewed its focus on acquisition, streaming and content protection. The bidding war between Disney and Comcast (CMCSA) for 21st Century Fox’s (FOX) assets has been raging. The purchase of Fox will help Disney or Comcast to strengthen their streaming service. The winner of the bidding war gets Hulu, which is a worthy rival to Netflix. The one who takes Fox’s assets would put themselves in an advantageous position in the media and entertainment market.

Related: Comcast could again make a move for Fox, but will Disney let go?

  • Amazon (AMZN) could stand as a major competitor for Netflix as the e-commerce giant has a better cash reserve and a captive prime membership. With the Prime membership, Amazon is becoming an alternative to the bloated pricing of cable and satellite subscriptions. Also, Amazon is the cheapest bet for 4K streaming. This, along with the features and benefits included in Prime, gives Amazon an advantage over Netflix and Hulu.
  • Google (GOOGL) is focusing on premium streaming content along with its video hub YouTube. Google is aiming high with its 1.5 billion monthly viewers and YouTube has been reaching out to more viewers from around the globe. YouTube Premium comes with a slightly higher price tag, but it includes YouTube Music, ad-free content, as well as YouTube Originals. The premium offering could stand as a hindrance to Netflix’s future growth.
  • Apple (AAPL) is venturing into the streaming market and is expanding its team of original series. Apple has hired Netflix development executive Layne Eskridge as Creative Executive. Also, the iPhone maker is planning to expand its services into the movie industry. The company has already inked a pact with media giant Oprah Winfrey to create programs that will be part of Apple’s original content.
Also Read:  Coupa Software Incorporated (COUP) Q2 2021 Earnings Call Transcript

Related: Apple’s next business could be movies

  • After the change in net neutrality, internet service providers are not interested in renegotiating with content providers. This has turned out to be an area of concern for Netflix, which ends up paying more to ensure customers get the same service speeds. Netflix had shown its support for net neutrality by posting a banner on its homepage.

This does not mean Netflix is a bad stock. It is undoubtedly the undisputed champion of original content at the moment. However, the optimism surrounding the stock sometimes travels beyond practical limits. Telecom and media is a fast evolving sector and practical understanding of different scenarios is ideal to make sensible investment decisions.

Related: Netflix: Almost THRICE as big as it was last year!

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