Netflix Stock Pops After Major Bank Weighs In On Upcoming Battle Against Apple, Disney+

Oct 10, 2019
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Shares of the world's top video streaming company Netflix popped today after Goldman Sachs declared Netflix would be safe despite upcoming onslaughts from heavyweights such as Apple and Disney (NYSE:DIS).

In fact, investors were so encouraged that Netflix led all other large-cap technology companies with its ~5% gain on the day. For those not in the know, the "N" in FANG (penned by TV stock market personality Jim Cramer" stands for Netflix, with the others, of course, being Facebook, Amazon, and Google. As an aside, a more apt grouping is now known as "FANGAM" with the inclusion of Apple and Microsoft. All together the 6 juggernauts cumulatively are worth 4.3 trillion dollars!

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Today's FANGAM breakdown:

Netflix poised for further growth

Anytime a company like Netflix breaks so far away from its peers there's surely some kind of catalyst or news that causes buyers to gobble up shares, driving up prices.

Well, today that catalyst was Goldman's letter to clients that affirmed it believes Netflix still has room to grow despite the full field of competitors rolling out equivalent streaming services in the near future.

Goldman analysts believe that for the price consumers are asked to pay for Netflix, the amount of content remains unbeatable. Due to that strong catalog of shows and movies, the firm believes that Netflix can make good on its promise to add 7 million subscribers in 2019. Continuing to attract additional paying customers in a crowded field is always a good thing, of course.

Netflix’s incremental net subscriber additions have grown continuously despite significant competitive pressure. We continue to believe that the relative value (price divided by content consumed) of Netflix far exceeds any of the current or planned competitive offerings, making it unlikely that any of them will replace Netflix as consumers’ primary streaming choice.

- Goldman Sachs analyst Heath Terry

Goldman has set a price target at $360 per share for Netflix, representing a 30% upside.

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Competition is ever-increasing

However, competition is indeed heating up. Both Apple and Disney are launching their streaming platforms, named Apple TV+ and Disney + respectively, just next month. Both companies have plenty of cash to push new content (especially Apple!), and when one considers that Netflix is $14 billion in debt one must wonder if Netflix can continue to attract top talent for its original programming. Don't forget about Amazon's Prime video service, which acquired a license for one of the world's top IP franchises - The Lord of the Rings. Amazon hopes to roll out its LOTR series in 2021.

Goldman Sachs went so far as to include a chart showing significant competitive launches vs how Netflix was forced to increase its prices and resulting subscriber growth. Please note the last three columns are speculative.

 

Goldman Sachs TV Streaming Chart

Netflix has been spending big on content for a while now and still has remained profitable. The streaming giant kept $1.2 billion in profit in 2018 despite spending $12 billion on content. In the first half of 2019, profits were reported at $614 million, despite the company saying that it would spend $18 billion in 2019 on content for its platform.

I'll close with a fun fact that may surprise you about Netflix - the company which first started out as a DVD by mail subscription service, still makes quite a bit of coin on physical DVDs making their way through the post office. In fact, Netflix reported $365 million in revenue for its legacy business in 2018, perhaps made even more impressive with earnings of $212 million! It made a net margin of 58% for its DVD business versus an average profit margin of 21% for its streaming businesses

 

 

 

 

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