Apple Inc (NASDAQ:AAPL) is not likely to pose a threat to Netflix Inc for now.
Shares of streaming company Netflix Inc (NASDAQ:NFLX) are down by 10% in the last one month. There are several factors for the decline, including profit booking. Netflix stock had rallied over 95% in the last one year before the recent correction, hence it is understandable that investors wanted to book some of the profits. Netflix stock also came under pressure due to some valuation concerns. But what accentuated the decline was Disney's decision to end the partnership with Netflix, and a renewed focus on the stiff competition Netflix is likely to face.
The streaming and media business is getting crowded with all the big tech names, including the 'FAANG' companies throwing their hats in the ring. And FAANG companies are not the only ones competing in this space. There are players like Hulu and HBO as well. Recently Disney also announced its intention to launch a video streaming service in the next couple of years, after ending its partnership with Netflix. Social media giant Facebook Inc (NASDAQ:FB) recently launched a new dedicated tab for watching videos. Facebook users can watch a variety of content, from Facebook originals to sports.
Apple Inc to focus on producing original content.
Cupertino based tech giant Apple Inc (NASDAQ:AAPL) is reportedly investing a billion dollars in producing original content over the next year. While $1 billion is small for Apple, and smaller than what competitors are spending, it's enough to create 10 shows with the scale of Game of Thrones. Hollywood veterans Jamie Erlicht and Zack Van Amburg, whom Apple had poached from Sony will be overseeing Apple's media efforts.
This news has created a lot of buzz with some calling Apple a new thorn in the flesh for Netflix. Producing original content is a capital intensive affair and Apple has access to vast resources. Its cash balance is more than three and half times Netflix's market cap, which it could deploy towards producing original content. However, Netflix scores over Apple in the quality of the content it produces. Netflix has delivered hits like 'House Of Cards' and 'Orange Is Black' while Apple doesn't have much of a track record in this field. Apple has launched two "Original" shows this year, "Planet of the Apps" and "Carpool Karaoke", both of which have received a cold reception. Apple still has some way to go, before it becomes a big threat to Netflix.
Moreover, a recent note by an analyst argues that Apple's one billion investment is not even targeted at Netflix, but at Spotify. Apple is housing the original content business inside Apple Music, giving an extra incentive for users to pick its $10 a month music streaming service over Spotify. "Apple has made the somewhat puzzling decision to house its original content within Apple Music, its subscription music service, because it wants to give users a reason to choose its service over market-leader Spotify." RBC analysts said in a note. Apple Inc is not a cause of worry for Netflix, at least for now.
Netflix stock has 24% upside.
Netflix Inc recently reported strong subscriber growth, both in the USA and the international market, despite competition from Amazon. "Despite increased competition, Netflix’s ability to identify and either license or produce ‘buzzworthy’ content appears far better than its peers," BTIG analyst Richard Greenfields wrote in a note. Netflix has a strong content line up which is loved by its viewers. That is a strong competitive advantage. Analysts remain bullish on the stock. Netflix stock received several price target upgrades after its Q2 earnings. Analysts at J.P. Morgan and RBC Capital have raised their price targets on Netflix stock to $210, indicating an upside of 24% from yesterday's close.
The downside in the stock is currently limited. Netflix stock has found support from the 50-day moving average after the recent correction. The stock has been trading around the 50-day moving average over the past week. Given the strong support, Netflix stock is likely headed higher.
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