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Netflix: Dominance, Doubt, And The Demystification Of Competition

May 03, 2021 3:13 PM ETNetflix, Inc. (NFLX)AMZN, CMCSA, DIS, GOOG, GOOGL, ROKU, SNEJF, SONY, T32 Comments
Niki Schranz profile picture
Niki Schranz


  • Netflix missed subscriber forecasts in Q1 2021 by two million and is guiding for only one million paid net adds in Q2 2021.
  • Management is blaming pull-forward effects and weak content for the miss. They see no material change in competitive intensity and point to the huge opportunity in front of them.
  • Independent research data suggests that Netflix's dominance in streaming is fading. Are we seeing a changing of the guard in streaming?
  • I believe that Netflix is still in the best strategic position in streaming and will continue to dominate the market. Competition is increasing but Netflix will handle it.
  • Shares are out of favor for quite some time now which presents a good buying opportunity for investors.

Photo by GoodLifeStudio/iStock Unreleased via Getty Images

Netflix (NASDAQ:NFLX) posted Q1 2021 earnings last week. The company missed on its subscriber additions and issued very soft guidance of only 1 million net adds for the next quarter.

Understandably, and deservedly, the

This article was written by

Niki Schranz profile picture
I am an individual investor from Europe. My investment decisions are based on fundamental analysis and long-term thinking. My goal is to find and invest in companies with the potential to yield high returns in the long term. I study earnings releases, conference calls, announcements, and basically everything I can find about the stocks I own. When I find the time, I like to write down some of my thoughts. My portfolio (as of December 2022): AAPL, AMZN, CRWD, DDOG, GOOG, MA, MDB, MNDY, NET, NFLX, OKTA, PYPL, SHOP, SNOW, UPST, ZM, ZS. My content is intended to be used and must be used for informational purposes only. It is very important to do your own analysis before making any investment decisions.

Analyst’s Disclosure: I am/we are long NFLX, GOOG, AMZN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (32)

Henry Little profile picture
Come on NFLX bulls...show your fortitude and bid this thing back up $540!
@Henry Little Patience Henry, you said the same thing when the stock was around $360.
Henry Little profile picture
@yellowpage Nope, never said anything like that around $360 . But you can keep telling yourself that if it makes you feel better.
@Henry Little Oh you did. You talked about that when the stock was around $360, and you wanted it to go up to $390 so you could short more. Your wishes came true. This time won't be different. This is not about feeling. It's about burnt pocket. I know I know, you make it up elsewhere.
Netflix has a stable churn rate. With an increasing bigger subscribe base, the absolute number of churn will also become higher each quarter. So acquisition plays an outsized role on meeting/missing the quarterly target. And acquisition is tied to the launch of key titles. At the end of the day, what's important is how many they sign up annually (and in COVID, last 2 years), not quarterly.
jerryvp1 profile picture
Just wondering if Netflix will ever go after live sports...like Amazon did with Thursday Night Football? Why not think beyond their current model?
nerd_rage profile picture
@jerryvp1 I think I know why NFLX doesn't want to get into sports - they've been successful with content that is evergreen and globalizable. When they make a show like Stranger Things, and they get a brand new subscriber tomorrow from Indonesia, that content is invested with value all over again as though it were brand new, for that person. Now multiply that across all their content and all the new subscribers they are getting every day, and you see how it adds up.

But that same guy in Indonesia probably wants to watch the other kind of football, not the NFL type. He wants to see his local team, which he's a fan of. And he doesn't care about games from three years ago.

And then you add in the problem of greedy sports leagues (in America anyway, not sure if they're greedy everywhere) who expect a premium price for their unglobalizable, quickly expiring content, and I can see why NFLX just said nah.

But sports will migrate to streaming somehow. So the way to compensate for the tougher business model of greedy leagues X harder-to-monetize content is to add in some new revenue stream. For FUBO, it could be gambling. For AMZN, it could be getting more eyeballs on their "real" business.

Every sports viewer who is lured into Amazon Prime to watch a game also needs to buy dog food, motor oil, toilet paper and beer - maybe that's the real value of sports going forward. It's the same business model as ever, based on advertising but for AMZN, it's even more efficient, since they advertise only themselves.
@nerd_rage Disney just negotiated NFL for ESPN+. That’s sports on streaming.

There will be a Saturday doubleheader during the season's final weekend and one Sunday morning game streaming nationally on ESPN+.
0/0 profile picture
Good article.
Don't forget that Google has its own other platform for content: Youtube. Scoff if you must, but it makes quite a bit of money for relatively little cost. And now Google is going all in and dropping Google Play movies and rentals--as well as music--and sticking with Youtube as the platform of choice; its one-stop shop.

" There are only so many Streeps, Rhimes, and Scorseses in the world and only so many hours a day to watch them. Attracting and empowering talent is one of the key challenges for streaming services and has become one of Netflix's biggest strengths"

I chuckled at that because, honestly, no one's really paying to watch them anywhere. The hits on streaming have not been from old-line creators at all. And as we can see from Youtube, though most of it is garbage, there are plenty of creative people out there who are figuring out how to capture eyeballs.

And I have to agree with @nerd_rage , I'd much rather own properties like Star Wars or Marvel (or DC or Star Trek) than be dependent on an overpriced individual.
nerd_rage profile picture
@0/0 Shonda Rhimes (and Ryan Murphy) definitely have their loyal followings. When I see Scorsese's name on a movie, I'll pay attention to it vs any other movie. So those brands have value, the main problem is that a corporation can't own them and could just be investing in building up a fanbase that Rhimes et al then take to the competition.
nerd_rage profile picture
"...the big studios could return to license their content to Netflix, if they fail to reach scale..."

Paramount (VIAC) and Universal (CMCSA) could end up acquisition targets but the buyers are likely to be companies with their own streaming platforms to feed. No content for NFLX there (unless NFLX ends up as the buyer.)

If T gets driven out of the content business (seems unlikely despite all their missteps but who knows), then Warners is in the same boat - juicy acquisition target.
Take a look at the weekly net subscriber additions and compare the data with the trajectory of expectations regarding covid. Substantial covid related one-off tailwinds in 2020 Q2-Q4 now turned into a headwind. With the progress of mass vaccinations people have had enough of staying at home and watching TV.
ShermanMcCoy profile picture
@GB77 so what? Nobody is about to throw their TV away.
@ShermanMcCoy you are right. People will dump tech shares instead of dumping their TVs. Covid related extra boost is waning and there is a set of softer guidances ahead. Considering the frothy valuations and a soft patch in growth, a substantial underperformance will be at hand in the tech sector.
ShermanMcCoy profile picture
@GB77 maybe. I don't waste time trying to call the market.

I've been doing this long enough to know that's a mug's game.
nerd_rage profile picture
Weak content?!? But every new Netflix show and movie is a monster hit!!

Okay sarcasm aside, we've never gotten a read on how Netflix's "hits" impact their subscriptions. Take Bridgerton (please!) It seems to appeal strongly to the same young-female audience that Netflix has been cultivating with other shows & movies. Even if Netflix was being honest in the viewership numbers, maybe it was just a "freebie" for current subscribers rather than something that gained new subscribers or retained the disgruntled ones.

Would be nice to someday get a better read on Netflix's content strategy and what big holes are still missing in their lineup, other than big-name brands. Or is that the only big hole left?

"It turns out that the scarce resources in TV and film entertainment are quality talent and user attention. There are only so many Streeps, Rhimes, and Scorseses in the world..."

And fewer Marvels and DCs and Star Warses too. The thing about human-being-brands is that they can get disgruntled or greedy and flounce off to the competition once their contract is up, possibly taking their loyal fans with them, but Marvel and Star Wars aren't going to defect from Disney, which makes investing in human-being-brands a dicey proposition.
Frank Thomas in Florida profile picture
Hasn't Netflix proved itself? Churn is relatively low. Netflix is cashflow positive. Who cares if new subscribers are slowing down as long s the subscription base is growing? I think eventually Apple, Comcast or one of the other struggling direct video providers gives up on developing their own streaming platform and buys Netflix out.
nerd_rage profile picture
@Frank Thomas in Florida There's no end to proving yourself for a corporation because the competition doesn't sit still. AAPL seems to be embarking on their own strategy, not in direct competition with NFLX but rather taking over the premium-content-only space being ceded by HBO Max.

I could see AppleTV+ becoming a serious force at both the Emmys and Oscars in the future. Their goal is to burnish their premium Apple brand, and being an everything-for-everyone service like NFLX doesn't serve that goal at all.

AMZN or even DIS (which is starting to expand into grownup content streaming overseas and eventually figure out their domestic strategy too) would be a more likely buyer for NFLX, assuming this is even fiscally possible.

CMCSA would be better off getting out of content entirely. They're too late and they're just going to waste money.
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