Netflix NFLX is mourning the loss of two of its subscribers’ most beloved sitcoms, “The Office” and “Friends.” AT&T T owned WarnerMedia announced on Tuesday that it will be pulling “Friends” off of Netflix in 2020 for the launch of their newest streaming service HBO Max. The new service is set to launch in the spring of 2020, and is said to include 10,000 hours of content. The content will be comprised of movies and TV shows from Warner Bros, TNT, TBS, Cartoon Network, and Adult Swim, amongst others. Netflix is currently paying roughly $80 million to keep "Friends" through this year, according to the Wall Street Journal. On top of losing out on “Friends,” Comcast’s CMCSA NBCUniversal will be taking back the rights to “The Office” for its new streaming TV service in 2021.
AT&T is reportedly paying $85 million per year for 5 years for the rights to have the hit show on HBO Max. “Friends” and “The Office” are two of Netflix’s most watched shows, according to research. This is likely making the streaming giant scramble for potential replacements for its subscribers. WarnerMedia CEO John Stankey is planning on getting 70 million subscribers to sign up for HBO Max, which would be double the subscribers HBO currently has. For the past couple years, Wall Street has valued Netflix for its subscriber growth rather than its bottom line, frustrating old media conglomerates into holstering up their guns.
Additionally, Disney DIS has recently given investors a sneak peek into what Disney+ will look like earlier this year. The streaming service will break down its content into the Pixar, Marvel, National Geographic, and Lucasfilm brands, which its users will be able to choose from.
Netflix is currently a Zacks Rank #3 (Hold) with a current price that may steer value investors away from the stock. The streaming giant was able to surpass our earnings estimates the previous quarter by 33.33%. NFLX has risen 41.7% since the start of 2019, with shares increasing almost 8% over the past four weeks. Netflix still has a strong hold within the streaming service industry, with 155 million subscribers worldwide and growing.
AT&T is a Zacks Rank #3 (Hold) and boasts a Style Score of A in Value. The communications giant is currently trading at 9X its forward earnings, which is well below the industry average of 15. AT&T’s earnings yield of 10.67% further pushes the stock above the industry in terms of valuation, beating the industry average by over 9%. The stock’s 18% increase on the year paired with its valuation should encourage investors to take a second look into AT&T.
Comcast is sitting at a Zacks Rank #3 (Hold), and is also coming off a solid first half of the year. The cable provider has been able to enjoy a 27.9% jump this year; the broader cable TV market has also been surging this year, up 30%. Furthermore, Comcast is trading at a discount relative to the industry at 14X its forward earnings with a PEG ratio of 1.20. Comcast can be a good pick up for an investor looking to ride the wave the cable providers have been on this year for a fair price.
Disney is listed as a Zacks Rank #4 (Sell) with some valuation issues of its own. The media giant is currently trading 21X its forward earnings, well above the industry average. Estimates are calling for the conglomerate’s earnings to see a fall of 5.88% this quarter and 8.78% decrease in the next quarter as well. Disney had a good first half of the year—shares ran up roughly 30%—but the stock is actually lagging behind the broader media conglomerate media market as whole by 5.5%.
Netflix is definitely facing stiff competition, and many companies are trying to come for its streaming throne. Disney+ is set to be priced at $6.99 per month and NBC Universal’s streaming service is said to be about $10 a month compared to Netflix’s $13 a month. Big name media companies are looking to enter the industry, and cable providers like Comcast are looking to win back the consumers they lost to the likes of Netflix. If Netflix wishes to remain a top dog in the industry, it must figure out how to successfully recover from the loss of two of its most streamed shows and trim down on the overwhelming content it offers that does not cater to broad audiences.
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