Netflix (NFLX 4.17%) isn't just the pioneer of the streaming business. It's still the king of it as well, boasting 223 million worldwide subscribers thanks to a significant head start on its rivals. It's also been one of the business's most rewarding stocks, rallying more than 10,000% since the company began streaming TV shows and movies back in 2007.
If you think the next 15 years are going to be as bullish as the past 15 have been, however, you might want to rethink your expectations. Netflix's hold on its piece of the streaming market isn't what it used to be. Namely, competition is giving consumers more and more streaming choices, making Netflix less and less of a standout. Here are the three most troubling red flags suggesting the company's highest growth days are in the past.
Netflix is losing its share of view time
Back in 2007, the cable television business was still going pretty strong. While the world wide web was a place to watch the occasional short clip (YouTube was only two years old at the time), conventional TV was still how most people entertained themselves with video for any meaningful length of time. It makes sense that, being the only real alternative then, Netflix won the lion's share of the streaming industry's then-nascent reach.
But Netflix is losing market share now. According to figures from Nielsen, while up from year-ago levels, Netflix's 7.3% share of time consumers spent streaming in September slipped from July's 8% and edged lower again in October to 7.2%.
Perhaps more troubling are the venues consumers increasingly choose over Netflix. During this three-month stretch, the world started watching more of Alphabet's (GOOG 1.25%) (GOOGL 1.27%) YouTube (when including YouTube TV), more of Walt Disney's (DIS 1.54%) Hulu, and more Disney+. Indeed, for the first time ever, YouTube became the world's top streaming destination in September, extending that lead to a share of 8.5% in October. Arguably the most alarming of Nielsen's metrics, though, is how the category "other streaming" has seen its share price grow from 9% a year ago to a record 10.8% in October.
Read between the lines. Netflix's dominance is no longer a given. People are increasingly looking elsewhere for entertainment.
No longer the domestic king
While the aforementioned shift in viewing time is a concern, it's not exactly surprising in light of the shift seen among the industry's paying customers...at least domestically. Research outfit Parks Associates reports that for the first time ever within the United States, there are now more paying Amazon (AMZN 1.30%) Prime customers than Netflix customers.
Take the report with a small grain of salt. Netflix only discloses customer counts for the U.S. and Canada combined, while Amazon doesn't break out any regionally based data on the rare occasion it updates its Prime headcounts; these are only estimates based on sampling surveys.
Parks Associates' figures hold enough water all the same, however. Aside from being supplied by a reputable market research resource, Parks' indicated rise and fall of the other streaming services' membership levels jibes with the data disclosed by several of the other streaming platforms, such as Disney+ and Hulu.
It's not a perfect apples-to-apples measure, to be fair. Amazon Prime customers also enjoy free shipping on most of what they order from the e-commerce giant. Nevertheless, the data points to Netflix's domestic vulnerability -- a vulnerability that could eventually manifest overseas as the rest of the world continues to explore other streaming options.
Slumping satisfaction
Finally, U.S. consumers' satisfaction with Netflix has been steadily falling since 2019. Specifically, its American Customer Satisfaction Index score peaked at 79 that year but has since slipped to 74 for 2022.
It's not too terribly difficult to figure out why. The year 2019 is arguably when the streaming wars took off in earnest. That's the same year Disney+ debuted, followed the next year with the launch of Warner Bros. Discovery's (WBD -0.35%) HBO Max and Comcast's Peacock. Most other streaming platforms up and running at the time also stepped up their games beginning that year as well. Once consumers had enough alternatives to compare Netflix to, some of its luster wore off.
Image source: Getty Images.
The American Customer Satisfaction Index score of 74 is still relatively high, mind you. It's not as high, however, as YouTube's current score of 77 nor the score of 78 that Disney+ is sporting for 2022. It's also not significantly better than Peacock's satisfaction measure of 72 or HBO Max's score of 73.
Again, connect the dots. Netflix isn't quite the must-have streaming service it used to be now that so many other streaming services are available.
Tread lightly, if at all
None of this is to suggest Netflix is doomed. It isn't. According to Hub Entertainment Research, the company is still the default video platform for 23% of U.S. consumers. That's far and away better than the 6% sported by the next-nearest streaming rival Hulu and even comparable to cable's status of being the go-to option for 28% of United States TV watchers. Talk about a powerful reach!
Nevertheless, it would be naive to believe Netflix carries the cache with consumers that it used to. This will limit its growth going forward even with the advent of its lower-cost, ad-supported offering.
It matters to investors because the stock's 70% drubbing since last November's high -- a loss most of which is still intact -- makes for an enticing entry point now. Unfortunately, although Netflix shares are likely to recover the remainder of this setback sooner or later, such a rebound isn't apt to happen anywhere as quickly as many investors may be hoping. So tread lightly and remember there may be better risk-versus-reward prospects out there.
