Categories Analysis, Technology

Video streaming to be the point of contention among FAANG-D stocks this earnings season

With home quarantines providing fertile grounds to streaming services, investors will be on the lookout for who benefited the most

When the dust settles after the COVID-19 crisis, video streaming will undeniably be among the industries that are standing high. Initial reports indicate that internet usage has jumped approximately 60% during the lockdown period. Streaming services, which account for about 20% of the overall viewing time, has already seen a jump in usage in the low-double digits.

In Europe, streaming services including Netflix (NASDAQ: NFLX) have been asked to cut down streaming quality so that broadband infrastructure for key government-level communications is not impacted; meaning the jump in internet usage is more than just finding of computer-generated algorithms.

Going into the second quarter of the hitherto-jinxed year, FAANG companies (and Disney) will likely focus more on the impact on their own video services during the earnings conference calls and other discussions.

Netflix on a money heist?

Netflix is the FAANG component that has so far shown solid resilience to the COVID-19 impact. The stock, which took a beating in the latter half of last year on fears over the rising competition, has jumped almost 22%  since mid-March, eclipsing S&P 500’s modest gains of 3.5% during the same period. On average, FAANG stocks have gained 7.8% during this period.

At the end of fiscal 2019, the company had 167 million paid subscribers, relatively higher than the 150 million paid members for rival Amazon’s  (NASDAQ: AMZN) Prime program. Netflix is also likely to have benefited from the timely launch of the fourth installment of the Spanish crime series Money Heist, which enjoys a massive fan following.

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During the fourth-quarter earnings conference call, Netflix’s Chief Product Officer Greg Peters had said they might consider bundling up multiple content services as well as annual packages, though nothing has been finalized. The response hints at a more flexible Netflix that has accepted the threat of rising competition and might now be willing to experiment with its packaging and pricing.

So I think there are multiple different opportunities to find the right mix where we’re able to introduce Netflix as part of a set of offerings that just make it simple for people to sign up and it’s logical and it’s intuitive for them to go do so.”

Two rating agencies – Wells Fargo and Bernstein — have recently raised their price targets on the stock stating that people who opt for it during the stay-at-home period are unlikely to cancel the service later on.

Netflix will report first-quarter 2020 earnings results after the regular market hours on Tuesday, April 21, 2020.

Bundling opportunities

Meanwhile, Walt Disney (NYSE: DIS) has been more effectively implementing service bundling since the launch of its streaming services last year. In November, Disney began offering a bundled subscription package of Disney+, ESPN+ and Hulu. The bundled offering has a lower average retail price per service compared to the prices of each service on a standalone basis.

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The average monthly revenue per paid subscriber for ESPN+ decreased from $4.67 to $4.44 due to a shift in the mix of subscribers to the company’s bundled offering.

Earlier today, Disney+ launched in India by bundling along with the country’s largest streaming service provider Hotstar. On an annual basis, this bundle is cheaper than Netflix but costlier than Amazon Prime in the country of 1.2 billion, where streaming is still in the budding stage. Hotstar reportedly has around 1.5 million paid users and a trove of regional content.

When the company reports quarterly results sometime in the first week of May, we may get to listen to some interesting statistics from the newly appointed CEO Bob Chapek.

Gushing Amazon, hushed Apple

Amazon CFO Brian T. Olsavsky said during the company’s latest earnings conference call:

We also had a very big uptick and response to the one day availability that’s been building through the year. We have more than 150 million paid Prime members globally now, and we mentioned that we have more people joined Prime in Q4 than any other quarter before.”

Growth in Amazon Prime memberships has been quite impressive in 2019. The management pointed out that the expansion of one-day shipping last year has boosted Prime membership last year and this trend is likely to continue. A 54% increase in commitments on the balance sheet for future multi-year deals should help Amazon stay at par with rivals in the streaming war.

Even though Apple (NASDAQ: AAPL) launched its streaming service TV+ in November, the company remained mum about subscriber count during the first-quarter earnings announcement late in January. And we do expect the firm’s obsession with secrecy to continue as we head into the upcoming earnings season. However, given the importance streaming has gained due to the recent turn of events, Apple might be forced to spill some beans during the upcoming conference call – we don’t know for sure though.

Some external agencies estimate Apple TV+ subscriber base to be around 33 million, but much of this could be users who received free one year of the service bundled on the purchase of new Apple devices. Some insights into what percentage of users are actually paying for the service would be useful to merit Apple TV+’s acceptance among binge-watchers.

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Even though Facebook (NASDAQ: FB) and Alphabet (NASDAQ: GOOGL) are yet to establish a footing in the streaming service, investors will still be keeping an eye on the usage trends of IGTV and YouTube Premium. Given that both these firms have a gigantic user base, we may expect to see some improvement in their video streaming base as well.

At the end of the day, discussions around video streaming are likely to get higher priority in the coming days. The lockdown days could even completely alter the existing market equations. But for better clarity, we need to sit patiently at home and watch.

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