Apple's (NASDAQ:AAPL) latest streaming plans and Amazon.com's (NASDAQ:AMZN) growing video services appear to be on a collision course with Netflix (NASDAQ:NFLX). If successful, both companies may be in a position to topple the show-streamer from its throne -- and Netflix is not looking as invincible in 2014 as it did last year.
Currently, Netflix remains in a strong position. Its stock is trading around 76 times forward earnings estimates, with a share price around $332. Its past momentum won Netflix recognition as 2013's best-performing stock in the S&P 500. If the company plays its cards (and House of Cards) right, it thinks it can grow from 33.4 million subscribers last year to as many as 90 million subscribers by the end of 2014. Netflix is reportedly responsible for around 32% of all downstream traffic on U.S. fixed-line broadband networks, 10 times more than Apple's iTunes, and 20 times more than Amazon Video.
However, late March news put a few chinks in the armor of the popular streaming service. When a report surfaced that Apple was in talks with Comcast to offer its own streaming show service, shares of Netflix fell by 7% on the news and continued to drop until it had lost around $45 by mid-April. When faced by big dogs like Apple and Amazon, investor doubt seemed to surface.
On that same Comcast news, Apple shares rose by 0.7%, to $536, eventually reaching $540 in March before sinking to around $521 in mid-April (not including reactions to Apple's upcoming second-quarter earnings report due on April 23). Meanwhile, Amazon's stock, after dropping by 22% since January, rose 2.9%, to $316, on the early April news that its own video-streaming service had tripled in growth last year. The addition of Amazon's new set-top box Fire TV didn't hurt, either.
Software's double-edged sword
Netflix is in the interesting position of depending almost entirely on its software services. This creates strengths and weaknesses. The Netflix brand is strong because it is adaptable: it's a streaming service that has been around for years, and customers are comfortable logging in on multiple devices. There's a reason that everything from Samsung TVs to the Roku set-top box to Fire TV offers a Netflix app -- a significant demographic expects and depends on that software. These deep roots are one of Netflix's greatest strengths.
But the software factor also creates weaknesses. It has been noted that Netflix lacks any brand name hardware. As Apple, Amazon, and others begin investing more in the streaming world, they have an advantage: they can make it very easy (via interface, promotion, etc.) for customers to use a device like Apple TV, an iPhone, a Kindle, or Fire TV to connect directly to their content, potentially pushing Netflix away from the public eye. This could be especially effective if the companies work with new cost models to drop their prices down to the $8 per-month level that Netflix sits at.
Netflix and evolving content
Netflix, however, isn't sitting still. The company is funding more content creation than ever before, juggling a growing roster that includes House of Cards, Orange is the New Black (renewed for a second season), and Hemlock Grove (also recently renewed). Like Amazon Studios, the company is invested in publishing original content to grow its brand, a move aimed at long-term value. This is content that Netflix subscribers won't be able to find anywhere else, giving customers an extra reason to sign up. Note that the company has already surpassed the U.S. subscription numbers of the other popular original content streamer, HBO Go. Netflix is also not above cutting direct deals with providers like Comcast to boost its streaming speeds by as much as 65% to improve reliability.
Additionally, the Wall Street Journal has reported that Netflix is thinking about creating a live TV-streaming service. This feature would include advertisements for revenue-hungry networks, but allow customers to cut the cable without losing some of their favorite shows. Diversification like this could give Netflix helpful sources of alternative revenue, something its major competitors already have. Expect streaming services to get much more interesting if Apple and Amazon remain serious about pushing further into the industry.
Tyler Lacoma has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, and Netflix. The Motley Fool owns shares of Amazon.com, Apple, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.