Netflix vs HBO: Streaming giant's roster teases more than plotlines

Bloomberg Business Sep 26, 2021, 05:14

(Bloomberg) -- “WandaVision,” “The White Lotus” and “Ted Lasso” rank among the buzziest streaming hits of this year. Something else they have in common: None of them were on Netflix.

Covid-related delays made for a light roster of 2021 shows at the streaming giant, just as competitors such as Disney+ and HBO Max from AT&T Inc. have been gaining a foothold in the market.

A strong content slate is vital to fueling subscriber growth, which investors watch closely. Shares of Netflix Inc. are up just 9.6% this year, trailing the S&P 500’s 19% gain, amid disappointing user growth. But on Saturday, Netflix held its first-ever Global Fan Event with a sneak peek of its upcoming films and TV shows. It’s an opportunity to prove it has the content it needs to drive a surge in new users, even as the battle for viewers and their wallets escalates.

“Netflix is now recognizing the competition,” said Ross Gerber, chief executive officer of Gerber Kawasaki Wealth & Investment Management, which has over $2 billion in assets and owns Netflix shares. “They’ve never had to market like, ‘Our shows are better than the other shows’ because they always had the best shows.”

Consumers decide which streaming services to subscribe to based primarily on the shows and movies they offer, as well as their price point, said Mario Stefanidis, vice president of research at Roundhill Investments. Netflix shares -- included in Roundhill’s Streaming Services & Technology ETF (SUBZ) -- have surged 15% in the past six weeks largely because of its release schedule.

The 1990s sitcom “Seinfeld” will make its long-awaited debut on Oct. 1. The company bought the works of Roald Dahl, the author of “Charlie and the Chocolate Factory.” And in a virtual event on Saturday, Netflix previewed more than 100 movies and series, including “Stranger Things” and “Bridgerton.” Also on the slate: “Tiger King 2” and a fourth season of “Ozark.”

“It gets in people’s minds when the next season of their favorite show is coming,” Macquarie analyst Tim Nollen said. “That’s good for branding and good for awareness -- good for subs, ultimately.”

The importance of new content was on display earlier this week when shares of Walt Disney Co. tumbled after Chief Executive Officer Bob Chapek said the persistence of the Covid-19 delta variant had created additional movie and TV production delays. That means subscriber growth may be slower than expected, Chapek said.

After the runup in shares since mid-August, Netflix’s valuation is around the priciest level in five months. The stock has traded at a forward price-to-earnings ratio of about 48 since the start of the month, which is the highest since April. Still, it’s well below the five-year average.

Gerber of Gerber Kawasaki said the stock remains his top streaming pick, but he isn’t adding to his firm’s position at these levels. He said Netflix is in a transition period as the company is valued more like a mature business and as it faces pressure from increasingly competitive streaming services and the resumption of in-person concerts and football games.

“That’s going to put pressure on the stock and the P-E ratio for the next year,” Gerber said. “But then when you go out a year from now, assuming we have a more normalized world again, Netflix is still the winner.”

Subscribers, Subscribers, Subscribers

When Netflix reports third-quarter results next month, the focus is expected to be the same as it always is.

“The No. 1 figure your eyes always set straight to is the sub numbers versus guidance,” Macquarie’s Nollen said.

In July, Netflix shocked analysts and investors by forecasting it would add just 3.5 million subscribers in the third quarter. However, analysts are slightly more optimistic, expecting the addition of 3.71 million users, according to data compiled by Bloomberg.