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Netflix's Loyal User Base & Content Strength Boost Prospects

Zacks Equity Research

Netflix NFLX is expected to face tough competition from Apple AAPL and Disney DIS in the crowded streaming space. However, a recent survey by Piper Jaffray indicates that the company’s situation is not as challenging as anticipated.

Notably, Apple’s streaming service Apple TV+ will be launched in more than 100 countries on Nov 1. The service will be available on the Apple TV app on iPhone, iPad, Apple TV and other platforms for $4.99 a month. Further, Disney is set to launch Disney+ at $6.99 a month and a Disney+, ESPN+ and Hulu bundle for $12.99 a month on Nov 12.

Netflix plans to counter rising competition on the back of its robust content portfolio and binge viewing. The streaming giant is estimated to spend $15 billion this year on content compared with $12 billion in 2018.

Loyal User Base Should Help Netflix Counter Competition

Per Piper Jaffray analyst Michel Olsen’s September survey, as cited by CNBC, roughly 75% of Netflix subscribers have no plan to subscribe to either Apple TV+ or Disney+. Moreover, users intending to subscribe to any of these upcoming services also plan to continue with their existing Netflix subscriptions.

The result of the survey reflects a loyal user base, providing some relief to Netflix. The company had 151.56 million paid subscribers at the end of the last reported quarter, which fell short of management’s expectation of 153.86 million subscribers, globally.

Moreover, the company lost roughly 130,000 paid subscribers against management’s expectation of growth of 0.3 million in the U.S. streaming segment.

Further, growth in the International segment slowed down in the said quarter. In fact, according to Evercore analysts, cited by a CNBC article, sluggish international downloads reflect weakness in the segment’s user base addition rate.

Netflix expects to have 158.56 million paid subscribers globally, up 21.6% year over year, at the end of third-quarter 2019.

The company has been severely affected by negative headlines related to increasing competition. CEO Reed Hastings recently admitted that competition will intensify in the streaming space post the launch of Apple TV+, Disney+ and NBCUniversal’s Peacock service.

He further pointed at Amazon’s AMZN initiatives to improve presence in the streaming space through its prime video service.

Netflix’s Strong Content Portfolio: A Game Changer

Netflix’s loyal user base can be attributed to its robust and engaging content portfolio. This was primarily responsible for the company’s solid run at Emmy awards this year.

Netflix won 27 Emmy awards, trailing only HBO, which grabbed 34 owing to its hugely popular Game of Thrones. Notably, last year, Netflix-HBO had tied at 23 each.

However, the company blamed weak content slate for lower subscriber growth in the last reported quarter. Further, the loss of streaming rights of Friends to WarnerMedia’s HBO Max and The Office to NBCUniversal, was a major setback for Netflix.

However, the company has reportedly acquired the streaming rights of Emmy-award winning comedy Seinfeld from its distributor Sony for five years beginning 2021.

Moreover, Netflix recently signed a multi-year deal with television writer-producers, David Benioff and D.B. Weiss, the names behind Game of Thrones, for creating movies and series.

Furthermore, the company’s popular show Stranger Things is set to return with the fourth season in 2020.

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