Netflix’s dominance in streaming is here to stay, this investor says

Netflix (Netflix Stock Quote, Charts, News, Analysts, Financials NASDAQ:NFLX) has been on a sweet run over the past few months, putting on around 25 per cent to its share price since mid-August, but investors keen on the stock should still be looking to buy in, says portfolio manager Shane Obata, who thinks the streaming giant will be king of the hill for years to come.

“Netflix is great. We continue to like it. I think it was out of favour for a while when there were concerns about competition and whatnot, but this is really the core of our future streaming bundle or whatever you want to call it, basically the replacement of cable,” said Obata of Middlefield Capital, speaking on BNN Bloomberg on Wednesday.

“Lots of younger people don’t have cable and probably never will, so I think over time it will eventually shift to a point where we all have various streaming packages. And I think Netflix is the one that sits at the core of that,” he said.

Two years ago entertainment juggernaut Disney launched its streaming platform Disney+ to much fanfare and more than a little sturm und drang about Netflix’s future, with many saying the onboarding of not just Disney but Hulu, Paramount, HBO Max, Amazon and so on would eat into Netflix’s success, causing slower growth and an evening out of the now way more competitive field.

Disney just delivered its fiscal fourth quarter earnings on Wednesday, showing an add-on of about 2.1 million subscribers which was a whole lot lower than the 12.6 million new subscribers from the company’s Q3. Disney reported 118.1 subscribers to Disney+, up 60 per cent year-over-year, plus about another 62 million for ESPN+ and Hulu.

“As we celebrate the two-year anniversary of Disney+, we’re extremely pleased with the success of our streaming business, with 179 million total subscriptions across our DTC portfolio at the end of fiscal 2021 and 60 per cent subscriber growth year-over-year for Disney+,” said Bob Chapek, Disney’s CEO in a press release.

“We continue to manage our DTC business for the long-term, and are confident that our high-quality entertainment and expansion into additional markets worldwide will enable us to further grow our streaming platforms globally,” he said.

But for Netflix, growth hasn’t really stalled that much. The company gained 4.4 million subscribers in its latest quarter, the company’s fiscal third quarter, delivered last month, which was double the 2.2 million added a year earlier. That number also beat analysts’ average forecast of 3.8 million.

The company said its slate of content over the first half of its fiscal year was lighter than normal but that there’ll be a dramatic pickup over the second half. 

“In Q3, we grew revenue 16 per cent year over year to $7.5 billion, while operating income rose 33 per cent versus the prior year quarter to $1.8 billion. We added 4.4 million paid net adds to end the quarter with 214 million paid memberships. We’re very excited to finish the year with what we expect to be our strongest Q4 content offering yet, which shows up as bigger content expense and lower operating margins sequentially,” the company said in an October 19 press release.

For Obata, now with more competition in the space Netflix’s position at the top of the heap has a lot more to do with its own production of content, which is leagues ahead of the other streamers. 

“It’s got by far the best value for its price. There’s basically an infinite amount of content on Netflix and you can’t really get through it,” said Obata. “People were worried about Netflix before because it was licensing all these different shows. But now it has really changed with how much in-house high quality production Netflix is doing.”

“I think it’s a great company. Yeah, maybe you see slower growth in the Americas and the more developed markets over time, but good companies will find ways to get bigger and I think gaming is potentially this other avenue that Netflix will continue to roll out and keep people happy. Netflix is really the core streaming company for sure,” he said.

Earlier this month, Netflix announced the launch of Netflix Gaming for those with paid Netflix subscriptions, making its games available now for both Android and iOS smartphones. The company has been in a tussle with Apple over commissions for third-party apps on its Apps Store but that battle has apparently been put aside for the time being.

“Whether you’re craving a casual game you can start from scratch or an immersive experience that lets you dig deeper into your favorite stories, we want to begin to build a library of games that offers something for everyone. We’re in the early days of creating a great gaming experience, and we’re excited to take you on this journey with us,” said Netflix in a press release.