Netflix (NFLX) Lower as Amazon (AMZN) Offers Prime Video as Standalone Service
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In addition to earnings after the close, Netflix (NASDAQ: NFLX) is lower in early trading Monday (-2.4%) as Amazon (NASDAQ: AMZN) changed its Amazon Prime Video offering to be available on a standalone basis in addition to being able to be purchased in a bundle with its standard Prime offering.
RBC Capital analyst Mark Mahaney believes this creates a negative headwind for Netflix.
A monthly subscription with Amazon will cost $8.99 per month, which is one dollar less than Netflix’s Standard plan, tho one dollar more than Netflix’s Basic plan," the analyst ntoes. Both Amazon Prime Video and Netflix’s Standard plan offer the ability to stream on two devices simultaneously and have access to both HD content. Furthermore, both services allow users to access content from any device (laptop, TV, smartphone, tablet) and both offer users their first month free. However, only Amazon’s Video offering has access to 4K Ultra HD content at a sub-$10 price point, as Netflix only has Ultra HD content at its Premium subscription level (costing $11.99/month). Furthermore, they'd note that Amazon’s Video service offers the ability for users to download content to their tablets/smartphones for offline watching, something that Netflix currently does not.
Mahaney commented, "We view this move by Amazon as a significant negative development for Netflix. Amazon certainly has the brand name, the customer relationships, and the focus on high-quality consumer experiences to impact the growth in Netflix’s U.S. subscriber base, and perhaps eventually its global subscriber base. And Amazon is coming in at a competitive price point that could pressure Netflix’s ability to convert subscribers from its Basic $7.99/month plan to its Standard $9.99 plan and Premium $11.99 plan. There will now be extra pressure on Netflix to execute well on its pending price increase. Very near-term, we could see this development impacting the June Quarter U.S. Net Sub Add guidance that Netflix will provide on its EPS call tonight. Long-term, much will depend on how Amazon markets and develops this service over time. But much will also depend on how Netflix continues to market and develop its service over time. And in support of the NFLX Long thesis, Netflix has an excellent track record of marketing and developing its own service – against 10 years of rising competition -- generating over 45MM U.S. paying subscribers and over 30MM International paying subscribers. Netflix also has a scale advantage, based on its subscriber base and its $5B+ in annual content spend and its brand strength (with “Netflix and Chill” now part of the vernacular) and its massive database of consumer video preferences. Further, Netflix has the competitive advantage of focus, with a standalone subscription service being its only offering. Finally, Netflix will continue to benefit from the clear global consumer move towards Video Streaming. Netflix does have a dominant leadership position in this segment, and unless it materially mis-executes, it’s hard not to see Netflix as one of Streaming’s global leaders in the future and as part of most subscribers’ “skinny bundle.”
The firm maintained an Outperform and $140 PT on NFLX.
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