Netflix Inc (NASDAQ:NFLX) disrupted the video rental market and beat out both Blockbuster and Redbox with a streaming service that’s now a household name.
It’s supported by nearly every smart TV and streaming device, and the company now creates tons of original content that’s exclusive to its service. While it battles traditional movie and TV studios, it found competition from an unexpected place – Apple Inc (NASDAQ:AAPL).
Apple TV Plus launched in November 2019 and is now in its second year of operation. The service started the year with 33.6 million users and hopes to grow to 40 million by year end.
This is far short of Netflix’s 73.08-million subscriber base at the end of the 2020 third quarter. But it’s doing better than Jeffrey Katzenberg’s $1.75 billion Quibi failure, which shut down in 2020 after only six months of existence.
With streaming becoming a more important part of everyday life, analysts wonder which is the better investment between Netflix stock vs Apple. Here’s a breakdown of both video streaming services to determine which has the best chance of success, starting with the reigning champion Netflix.
Netflix Stock Steamrolls Ahead
Netflix stock nearly doubled in the aftermath of the global pandemic. It dropped to a 52-week low of $281.14 in March before climbing to a high of $575.37 and hovering around the $550 mark.
It has a market capitalization over $225 billion heading into Thanksgiving, with a P/E ratio of 83.16. The company’s good fortune is almost entirely tied to the global lockdowns.
Although Quibi failed to attract a userbase, Netflix (NFLX) grew its subscribers as everyone prepared for stay-at-home orders.
Its biggest hurdle was these shutdowns also affecting production on its original programming (along with every other studio). This caused a slowdown of movie and TV releases throughout 2020 and delayed many of the biggest projects until a 2021 release. It also forced Disney’s hand in pushing big-name projects like Mulan and Soul to Disney Plus exclusives.
The loss of Disney (DIS) and Comcast starting its own Peacock streaming service drains Netflix of many of big-name streaming titles, like The Office, Friends, and the Marvel universe.
However, the company still managed to add nearly 26 million subscribers during the lockdown, and it’s raising its streaming prices in the U.S. heading into the holidays. These moves are expected to generate more revenue and keep the growth trend going.
Apple Has Scale Advantages To Threaten NFLX
Apple may be new to streaming TV, but it’s long been a player in the digital content landscape. Its iTunes service and App Store evolved from a music download service to a robust app and content ecosystem.
Because it controls its entire ecosystem, it’s able to offer Apple TV and Apple TV Plus to existing customers for a cheaper price than Netflix. This strategy is how it plans to grow to 40 million subscribers by year end.
It has some heavy-hitting content on deck starring A-list celebrities too, including Jennifer Anniston, M. Night Shyamalan, Oprah Winfrey, and Kumail Nanjiani.
The company is hedging its bets by bundling a free year of service with its latest iPhones, which are sure to fuel sales and may convince a noticeable portion of people to switch from Android. However, Verizon (VZ) is giving away Disney Plus in response, and Comcast Xfinity customers already enjoy Peacock for free.
The company is also spending a reported $6 billion to create this content. This is only a third of the $18.5 billion Netflix spends, and streaming content is just one piece of Apple’s pie (and not a very profitable one, considering most its subscribers don’t even pay for the service).
This gives the company more ways to diversify its revenue streams than Netflix.
Netflix Won The Streaming Battle, But The War?
Netflix is a risky business that’s only getting riskier. Its early success depended heavily on partnerships with the studios to allow it to rent DVDs and Blu Ray disks in bulk.
In fact, there are still 2 million people who subscribe to the Netflix DVD-by-mail service you didn’t realize still exists. And this dynamic creates a double-edged threat for the streaming giant.
Studios are now less willing to negotiate with Netflix after it poached much of their fan-friendly talent, like Adam Sandler, Ryan Reynolds, and Dwayne “The Rock” Johnson.
In response, the studios started a migration of their content away from Netflix and onto platforms they control themselves. This puts Netflix in a position where it needs to compete against its suppliers for dominance, and this could set it up to lose.
The question is whether it’ll lose to Apple TV Plus, which seems unlikely. However, it wouldn’t be out of the question for Apple (or another larger tech company) to simply buy Netflix if it started to falter on its revenue. Of course, Apple has its own problems to address.
Is Apple Making Money From Streaming?
Apple TV Plus has a lot of subscribers, but it’s not making any money yet. The company did grow its annual services revenue to $46 billion in 2019, but it’s unclear what part the streaming service played in this.
Like Amazon Prime, it appears to be more of a benefit for existing subscribers to keep them on the platform. But the content is good, so nobody’s complaining yet.
Streaming isn’t the only market Apple’s competing in though, and things are heating up in mobile with the 5G wars and desktops through cloud computing.
The company needs to push on all cylinders to keep its ecosystem profitable and competitive moving forward into a tough economic outlook for 2021 and beyond.
Apple Vs Netflix Stock: Which Is Best?
Apple and Netflix are two of the most popular brands in digital content. Netflix redefined how we consume video content and created the age of streaming we’re living in.
Apple popularized podcasts and streaming music and is now offering high-quality video content in its ecosystem. They’re competing head-to-head with both each other and the Hollywood studios who are promoting their own services.
When the battle gets tough, Apple has the larger war chest and can more easily buy its way out of any issues. It’s spending a third of Netflix’s budget and still generating profits.
Apple TV Plus may not be the streaming service of choice for consumers yet, but investors are bullish on its future potential.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.