Apple poses an additional threat to Netflix, Inc. (NASDAQ:NFLX) stock
Bad news for Netflix (NASDAQ:NFLX) yesterday: Apple (NASDAQ:AAPL) announced the competing Apple TV+ service at its spring event. Apple’s entry into the streaming business poses a clear threat to Netflix stock. Not only will Apple develop competing programming, it will also exclude Netflix from its Apple TV app.
Although Netflix stock rose in Monday trading despite this announcement, the threat of more competition makes NFLX a riskier prospect.
Apple’s Entry Into Streaming Adds to Netflix’s Troubles
Before Apple announced its entry into streaming, Netflix stock had arguably become the scariest stock in the S&P 500. The high cost of its content development strategy has sent corporate debt levels to new highs. Moreover, with Disney (NYSE:DIS) set to launch its Disney+ streaming services this year, all Disney-owned content will leave the Netflix platform. Conversely, with NFLX’s history of massive moves higher, many investors have perceived NFLX stock as a dangerous short.
NFLX currently trades around $360. I would not consider shorting Netflix stock at least until it falls below $340 per share — the point at which it would trade below its 50-day and 200-day moving averages.
Still, Netflix’s first-mover advantage in the streaming market may be finally coming to an end. Netflix will already lose some of its edge when Disney’s programs leave the service. Moreover, Apple holds $245 billion in cash. Hence, it can afford to outspend the $15 billion in expected content spending for Netflix this year. Also, unlike Netflix, Apple can fund content development without adding further debt.
Netflix will also not work with Apple in another critical area. Apple’s TV app will combine peers like Hulu or Prime from Amazon (NASDAQ:AMZN) in one place. It will also add premium channels such as AT&T’s (NYSE:T) HBO and pay-TV services such as DirecTV. However, Netflix will remain notably absent from this app. This could leave Netflix at a disadvantage.
Netflix Stock Remains Unaffected — For Now
Netflix stock has yet to react to the threat of an Apple streaming service. Although NFLX trades about 15% below the highs of last June, it has risen dramatically from the intraday low of $231.23 per share it saw last December. Analysts have also stuck by profit growth forecasts. Wall Street predicts net income will increase by 50.7% this year and 58.2% the next year.
Moreover, even with the recent increase to $12.99 per month, Netflix has had to borrow massive amounts of money to fund content development. As a result, Netflix holds $10.36 billion in long-term debt, supported by stockholders’ equity of only $5.24 billion. For this reason, NFLX may have to issue more shares to pay its content costs.
The company increased its shares outstanding by 0.99% — or 4 million shares last year. That would raise about $1.45 billion at today’s stock price. If that pace were to rise dramatically, that would place considerable downward pressure on Netflix stock.
The Bottom Line on Netflix Stock
The threat of competition from Apple makes Netflix stock too dangerous to own. The company will already face a serious setback when Disney’s content becomes its competition.
Now with cash-rich Apple entering its business, NFLX’s long-term prospects dim further. Netflix must borrow increasing amounts to stay ahead on content. Despite this pace, Apple can outspend Netflix with a relatively small percentage of its cash reserves. Moreover, with Netflix not on the Apple TV app, it could find itself forgotten by many potential viewers.
Given these threats, I cannot see how Netflix will retain its content lead. With the high valuation and intense competition, I would recommend investors sell Netflix stock before its technical difficulties worsen.
Overall, the bias in prices is: Upwards.
The projected upper bound is: 376.43.
The projected lower bound is: 331.13.
The projected closing price is: 353.78.
A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 25 white candles and 25 black candles.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 21.1343. This is not an overbought or oversold reading. The last signal was a sell 7 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 47.09. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 46 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -81. This is not a topping or bottoming area. The last signal was a sell 3 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 1 period(s) ago.
Rex Takasugi – TD Profile
NETFLIX INC closed down -6.600 at 353.370. Volume was 27% below average (neutral) and Bollinger Bands were 54% narrower than normal.
Open High Low Close Volume___
361.000 362.470 350.370 353.370 7,852,370
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bullish
Moving Averages: 10-period 50-period 200-period
Close: 363.62 352.97 340.22
Volatility: 44 41 56
Volume: 8,056,601 9,076,471 11,673,730
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
NETFLIX INC is currently 3.9% above its 200-period moving average and is in an downward trend. Volatility is extremely high when compared to the average volatility over the last 10 periods. There is a good possibility that volatility will decrease and prices will stabilize in the near term. Our volume indicators reflect volume flowing into and out of NFLX.O at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on NFLX.O and have had this outlook for the last 0 periods. our momentum oscillator has set a new 14-period low while the security price has not. This is a bearish divergence.