What's going on with Netflix: The king of streaming from a rival that surpasses Disney is now dead, stock price drops 67% after only 1 year
(Country) - According to media executives, it will be quite a while before streaming services turn a profit.
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Last month, after Netflix revealed its first quarterly drop in new user subscriptions, the streaming industry was plunged into turmoil. Concerns have been raised about the future of a multi-billion dollar industry, and investors have questioned: Is the increase in the number of platforms directly proportional to profitability? ?
NETFLIX STOP GROWTH?
Last October, Netflix, with its hit series "Stranger Things," emerged as a phenomenon. With a market capitalization of $300 billion, this giant leads the list of giants in the same industry, surpassing Disney with only $290 billion. Still, Netflix stock is down 67% year-to-date so far this year. The main reason came from the trading session in the red in April, after the streaming giant reported a decrease in the number of registered users.
" Customers leave Netflix too easily. They see the pressures of inflation in all sorts of expenses, and cutting back on streaming services is a quick way to save money ," Russ Mold, Investment director at AJ Bell said.
This "mirror" affected a host of other media and streaming companies, including Disney - the company with the worst performing stock in the Dow Jones industrial index 2022. series of hit series like "The Book of Boba Fett" and "Moon Knight" that helped Disney "pocket" 20 million new registrations does not seem to be enough to make the situation better.
Up to now, Netflix stock is down 67% compared to the beginning of the year
According to CNBC, Discovery media company also added 12.8 million new subscribers in the past year, bringing the total number of accounts owned to 76.8 million globally. Even so, Discovery stock is still down more than 20% since it began trading in April, following its merger with Warner Media.
In the past, the formula for determining the success of a live streaming company seemed simple: new subscribers increase, shares rise. However, after Netflix's revenue decline, CEOs had to consider their next steps more carefully.
“ The pandemic has created an explosion in the number of users, when everyone has to stay at home because of the blockade orders. Now, however, it's time for media companies to make a decision: continue to pursue Netflix globally, or stop the war? ,” said Michael Nathanson, an analyst at Moffett Nathanson.
According to CNBC, the simplest thing companies can do right now, is to wait and see if betting on exclusive streaming content attracts investor capital.
Late last year, Disney announced it would spend $33 billion on content by 2022, while Comcast CEO Brian Roberts committed $3 billion to NBCUniversal's Peacock and $5 billion to its streaming service. in 2023. However, the above efforts are not enough to bring profit.
Disney announced it will spend $33 billion on content by 2022
In the first quarter, Disney reported a loss of $887 million related to its streaming services, compared with a loss of $290 million a year earlier. Comcast also estimates Peacock will lose $2.5 billion this year, more than half the deficit in 2021.
According to media executives, it will be quite a while before streaming services turn a profit. Disney estimates Disney, its signature streaming service, will become profitable only by 2024. Warner Bros' HBO Max or Paramount Global's Paramount are also forecasting a similar timeline.
Netflix is no exception, announcing that growth will only return in the second half of the year, but investors may have been fed up with the drop in new subscriptions. Netflix stock performance has shown that.
Media CEOs therefore ask themselves, whether or not to throw money at live streaming services.
“ We're going to spend more on content, but it's probably not going anywhere. Okay, we're going to spend another $5 billion, " Warner Bros CEO David Zaslav said after Netflix's slide. “ We will need calculation and care .”
Knowing that, but Zaslav is still facing a market that is not very positive. HBO Max's handshake with Discovery, and then the CNN news channel and Turner sports, doesn't seem to work. Experts say that this seems to be Discovery's attempt to slow down the recession, but hardly serve the growth target.
HBO Max estimates its signature streaming service, will only be profitable by 2024
However, no matter what, the merger will have many advantages, especially in the context of more and more big players competing for viewers. Currently, Amazon Prime Video, Apple TV, Disney, HBO Max/Discovery, Netflix, Paramount and Peacock all have global ambitions to develop streaming services that can generate huge profits.
A big enough acquisition could change the way investors see the growth potential of the industry, according to Gamco's Marangi. “Hopefully the end result will be growth,” he said. “The reason to keep investing is that you never know what will happen.”
According to CNBC, US regulators could make it difficult for any deal among the most powerful. Amazon bought the movie studio MGM for $8.5 billion, but it's unclear if it wants to buy anything more valuable.
Government restrictions on broadcast ownership will almost certainly negatively affect the NBC-CBS deal. The two parent companies, NBCUniversal and Paramount Global, are therefore highly unlikely to merge directly.
The new government can open the door to streaming businesses that are already being squeezed
However, if streaming continues to dominate in terms of viewership, regulators will soften. The new administration could also open the door to deals that are being squeezed or outright rejected.
Billionaire Warren Buffett's Berkshire Hathaway this month announced the purchase of 69 million shares of Paramount Global. This is an indicator of the trust placed in the streaming companies trying to find their way back to the good old days.
Some investors are optimistic that a new form of low-cost ad-supported streaming will help improve user numbers. Disney is planning to launch a new Disney ad later this year. Netflix has also caused a stir in the media after announcing an ad-supported service after years of continuously denying the profits that this field brings.
According to experts, Netflix's push to advertise will be able to revive the platform's new subscriber growth rate. It is known that customers in the US and Canada pay an average of nearly $15 a month for Netflix, much higher than Disney's $6 average. Netflix can attract new users by tweaking its service plan to just $9.99/month or less - a price that HBO representatives believe can help the Netflix giant create a significant number of new customers. tell.
Netflix's demise leaves investors skeptical about the streaming industry's valuation
However, with the prospect of a global recession still looming, Disney and Netflix must now rethink their plans. They fear that inflation will cause the company to tighten its marketing budget, thereby reducing its quarterly revenue outlook.
" The macro environment is deteriorating, faster than we anticipated ," Snap CEO Evan Spiegel said in a report last week. Snap makes most of its money from advertising, and the company's stock fell 43% immediately after the announcement.
“ Advertising is a volatile business. The recession that started last year has accelerated in recent months. We are currently in a downward cycle ,' said Patrick Steel, former CEO of Politico, the political digital media company.
Investors are still waiting to see if Netflix can maintain its competition with its peers, amid concerns that it could become the worst performing stock in 2022 in both baskets. the S&P 500 and Nasdaq 100 technology numbers.
“ Netflix has broken the glory of the traditional pay TV sector, which used to generate huge profits that attracted many investors. However, it is possible that Netflix has underestimated the challenges at the moment, especially when the capital markets stop supporting and the Fed stops launching economic stimulus packages '', Bill Smead, Investment Director Investors at Smead Capital Management said.
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