Can Apple and Amazon Beat Netflix?

Is it possible to catch up to Netflix? Investors seem to think so.

Apr 23, 2014 at 10:00PM

Images

Source: Image by Flickr user John Biehler

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.

Your cable company is scared, but you can get rich
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple.

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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers