Netflix: A Streaming Buy! - InvestingChannel

Netflix: A Streaming Buy!

Proprietary Data Insights

Top Entertainment Stock Searches This Month

Rank Name Searches
#1 AMC Entertainment 508,277
#2 Netflix 316,318
#3 Walt Disney 178,571
#4 Comcast 24,144
#5 World Wrestling Entertainment 20,37

Source: Variety 

Variety released its 2022 state of streaming report the other day. And it looks considerably better than the state of the union. 

While there’s a fight between the second- and third-most searched entertainment stocks in our proprietary Trackstar database, Netflix (NFLX) and Disney (DIS), it’s obvious who has the edge and how you might want to consider approaching the situation as a long-term investor. 

Before we get to that, it’s clear: If it weren’t for live sports, traditional television companies would be officially dead, not just on life support. 

  • ESPN paid nearly $30 billion just for Monday Night Football. Disney owns 80% of ESPN. Hearst Communications owns the remaining 20%. 
  • FOX (FOXA) dropped $23 billion to air NFC football, while Paramount Global (PARA)’s CBS spent about $21 billion for AFC games. 
  • Amazon (AMZN) allocated $11 billion to run Thursday Night Football via Prime Video.

Each of these deals has an 11-year term. So Amazon pays a billion per year, FOX and CBS about $2 billion each, and ESPN $2.7 billion for NFL rights.

Why pay big for sports? Because they’re the last bastion for appointment viewing. Televised events you feel the need to watch when and as they happen. 

Viewers don’t treat sports the same way they do other TV shows. If you missed the big game when it was on, you might as well not even bother watching it. 

Unlike binge-friendly or weekly release shows, friends don’t ask friends if they watched the big game yet. They immediately start riffing on what happened. 

Netflix has yet to pay big for sports and probably never will. 

The Juice has the reasons next. Reasons that double as key elements of the bull case for NFLX stock.


Netflix: A Streaming Buy!

Key Takeaways:

  • It looks like Netflix might have been bluffing about subscribers. 
  • Despite the hype and hysteria, Netflix operates from a position of strength. 
  • NFLX remains as strong a buy as ever for long-term investors. 


It’s hard for The Juice to believe Netflix was being wholly forthright when, after losing 200,000 subscribers in Q1, it guided for a net loss of 2 million more in Q2. 

Not only did the company shed just 970,000 subs in Q2, it ended up gaining about 2.4 million in Q3 and predicts it’ll add another 4.5 million in Q4. 

In fact, we think Netflix might have stolen a page from Apple (AAPL)’s old playbook. The Juice loves this excerpt from a 2008 Gawker article that explained how Steve Jobs often directed Apple earnings without even being on the conference calls: 

No one actually believes Apple’s “guidance.” For years, it’s been shown to lowball the actual number so it can surprise Wall Street, a maneuver that no longer surprises anyone. This has reduced Apple’s quarterly earnings call to an exercise in which its chief financial officer pretends he’s not lying, and bank analysts pretend they believe him.

What better way for Netflix to reassert its streaming dominance than to humble itself after a misstep, lower expectations to the gutter, then blow everybody’s mind with “surprise” killer numbers. 

The strategy or whatever actually happened has done wonders for the stock: 


Source: Google Finance

Over the last six months, Netflix has absolutely crushed Disney. 

Here’s why. As Netflix noted in its Q3 shareholder letter:

  • “In the US, Netflix accounts for 7.6% of TV time, 2.6x Amazon and 1.4x Disney + Hulu + Hulu Live.”
  • “Our competitors are investing heavily to drive subscribers and engagement, but building a large, successful streaming business is hard – we estimate they are all losing money, with combined 2022 operating losses well over $10 billion, vs. Netflix’s $5 to $6 billion annual operating profit.” (Emphasis added.)

Quite a reversal for a company that predicted carnage for itself just six months ago. 

Then there’s this: 

most watched

Source: Variety

Every one of 2022’s most watched streaming shows airs on Netflix. Every single one. 

While there’s no question we were onto something in April when we suggested Netflix manipulated the Stranger Things release date to help stop the subscriber bleeding, it turns out the company’s content original and third-party dominates 2022 streaming so far.

  • Overall, viewers streamed 124.3 billion minutes worth of content on Netflix this past summer. 
  • The next four names on the list combined account for just over 20% of Netflix’s total:
    • Amazon’s 10.3 billion minutes would be a lot less without football. 
    • Disney came in at 10.2 billion minutes. 
    • Warner Bros. Discovery (WBD)’s HBO Max hit 3 billion minutes.
    • Hulu logged a relatively weak 2 billion minutes. 

Then there’s this!


Source: Variety

If Netflix can do all of the above add subs after saying it’s screwed, be profitable, and blow everybody and their Grandma away on minutes streamed while keeping its spending in the middle of the pack, why in the world would it bother dropping additional billions on sports? 

This would be a financially irresponsible move, one entities make out of desperation to try to catch up to a streaming OG giant.

The Bottom Line: Most of the companies biting at Netflix’s heels have lucrative balls in the air other than streaming. 

In fact, as Netflix brashly stated, these companies likely lose money on their streaming ventures. In some cases, the billions they pay for live sports help explain the lack of profitability. 

This isn’t to say these stocks aren’t buys, especially Disney. You just buy them for reasons other than their streaming platforms. 

If you want a long-term pure play on streaming, NFLX remains our top pick. The numbers don’t lie, even if Netflix kind of, sort of, maybe does.

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