Netflix struggles to keep up with growth among FAANG stocks

FAANG stocks are growth stocks. It includes five Nasdaq-listed technology giants Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX), and Alphabet (NASDAQ:GOOG). They maintain a dominant position and have several competitive advantages in their respective markets.

In the past few years, these stocks gained much higher than what the benchmark S&P 500 Index and Nasdaq Composite Index have returned. In addition, the quarterly numbers of these U.S.-based companies have been impressive and have mostly exceeded the analysts’ estimates.

However, the California-based video streaming giant Netflix now stands out among the FAANG stocks returns this year. While the stocks of Facebook, Apple, Amazon, and Google’s parent company Alphabet are on an upward trajectory, as usual, Netflix is on a downtrend this year.

The Facebook stock returned 27 percent, Apple gained 10 percent, Amazon rose 10 percent, and Alphabet gained 45 percent year to date. Also, the S&P 500 index grew over 15 percent during the period. But Netflix stock fell approximately 5 percent this year. Though Netflix hit its all-time high of US$593.29 in January, the stock failed to keep up its growth momentum and declined to end last week’s trading at US$504.66.

Meanwhile, Netflix disappointed investors in April when it put out the first quarter results for this year. At the same time, investors cheered the recent quarterly numbers of Facebook, Apple, Amazon and Alphabet. Netflix had reported strong revenue and profit growth in the first quarter, while its subscriber numbers fell short of estimates. The same was the case in the second quarter also.

The streaming market has become much more competitive around the world today than the previous years, with more traditional media getting into streaming services. These days, many players, including Disney, WarnerMedia, Discovery, Comcast, and Apple, offer streaming platforms.

Netflix has seen a drastic slowdown in its subscriber growth during the first six months of this year, compared with the growth in the year-ago period. It has sparked concerns among investors on its ability to maintain the dominant position in the streaming service market.

In the first quarter, it added 3.9 million while it added 1.5 million subscribers in the second quarter. It compares with the 15.8 million and 10.1 million subscribers that Netflix added in the first and second same quarters in the previous year, respectively. Netflix managed to add only around half the subscribers it had earlier projected for the March quarter. And most importantly, Netflix lost more than 400,000 subscribers in the U.S. and Canada during the June quarter.

In contrast, Netflix’s major competitors HBO Max and HBO added 2.8 million new domestic subscribers during the second quarter. But HBO Max subscribers are now projected to grow to the range of 70 million to 73 million globally by the end of the year, against the previously estimated range of 67 million to 70 million subscribers.

The media industry witnessed major consolidations recently. Disney bought Fox, while AT&T agreed to combine WarnerMedia, which owns HBO, with Discovery. Netflix also faces tough competition from Amazon’s OTT streaming platform Prime Video. Amazon’s Prime subscription program had more than 200 million users globally at the end of its March quarter. Amazon is also acquiring MGM Studio, which could give a significant boost to its content offering.

However, Netflix might still be able to improve its subscriber growth numbers and make sure that it does not lose ground with its competitors. The company attributed its decline in subscriber growth to the comparison made with the unprecedented subscriber additions during the coronavirus outbreak last year.

Investors would undoubtedly like to see Netflix sustain the robust growth rate at which it had grown in the past years. However, the strong revenue figures and its global outreach put Netflix in a better position when compared to its competitors in the streaming service.

Investing more to generate a variety of new quality content and expanding its offerings could prove effective for the company. It could help Netflix to cash in more people around the world who are yet to subscribe to any streaming platforms.

While announcing the June quarter results, Netflix confirmed plans to expand its content beyond movies and TV shows to gaming. The company said it is in the early stages of expanding into the gaming space and plans to make it a new content category. The gaming will be added to its subscription without any additional costs. With the new offering, Netflix could be looking to maintain its subscriber base and lure gamers and game developers.

Written by Kunal Sawhney, CEO, Kalkine Group.