Home Latest News The Video Streaming Market In The U.S.: Netflix Is Our Favorite Pure...

The Video Streaming Market In The U.S.: Netflix Is Our Favorite Pure Player (NASDAQ:NFLX) – Seeking Alpha

Entertainment Industry Workers Vote To Strike, Threatening Hollywood Productions

Mario Tama/Getty Images News

Mario Tama/Getty Images News
The video streaming market in the U.S. remains very competitive, with players like Disney (DIS), Apple (AAPL) and so on coming in to replace permanent leader – Netflix, Inc. (NASDAQ:NFLX). We believe that battle for subscribers will continue in 2022 due to the need to meet increasing demand. We also believe that in the competition for subscribers, companies will start to reduce the cost of their services or expand their features without corresponding increase in subscription price following the decline in real household income, which will have dampening effect on business in the short term. Consequently, we have decided to look into what the streaming video market is like and why Netflix remains an attractive company.
The global video streaming market is estimated to be worth $71 bln. It experienced a significant acceleration in 2020, when the world was struck by the record rapid spread of COVID-19 and introduction of total social restrictions, such as quarantines and lockdowns. For instance, downloads of Netflix mobile app exceeded 1 million downloads per day.
However, despite the normalization of social life, the habit of having subscription to streaming services has not changed. It has become part of everyday life in post-pandemic society. The growth of streaming services market also will be facilitated by the development of peripheral devices, such as TV consoles, where some services are already available as a pre-installed option.

Video streaming market, $ bln

Statista

Netflix mobile app downloads

Hedge Eye

Statista
Hedge Eye
In the U.S., the market for streaming video on demand (movies on subscription) is highly competitive. Now households can choose from around 10 different platforms. However, Netflix remains the undisputed leader. Therefore, the battle for wallets in 2022 will only intensify, and the reasons are listed below.

Shares of the market players 2019-2021.

Forbes

Forbes
The whole world, including the USA, is experiencing unprecedented inflation growth, primarily caused by record-high energy prices and disrupted supply chains. The strongest effect from rising commodity costs will be seen in the lower quantile. Although real household incomes will not fall to a large extent, disposable income will fall (income after all expenses, including liability payments).
The reason is that households have accumulated their debts through mortgage demand and low-interest purchases of durable consumer goods. Liabilities have slightly decreased during the stimulus period, but the effect of pent-up demand has not only made it possible to spend all the accumulated cash, but also to take on additional debt.
Debt service has become increasingly difficult. For instance, the household default composite index in the U.S. has started to rise along with the rate hike. And the market has already assumed at least 7-8 such raises. In other words, there is a question of expediency of multiple subscriptions to different services. The global situation is similar.

Household liabilities in the USA

FRB

Household loans defaults, %

YCharts

Personal savings rate, %

FRED

FRB
YCharts
FRED
The decline in spending on subscription was already noticeable in the first quarter. At the end of Q1 2022, the total number of subscribers to Netflix’s platform dropped to 221.6 mln people. The outflow of Netflix subscribers is largely due to the withdrawal of the service from Russia. This represents approximately 700 000 subscriptions. Netflix showed decline by 200 000 subscriptions over the quarter. Therefore, if the company had not left Russia, we would have seen a weak increase of 500 000 subscriptions during the quarter.
However, the most important factor in Netflix’s reports is the expected decline in subscribers in Q2 by 2 million against increase in subscriptions by 2.4 mln people expected by analysts. We believe that investors have sharply reacted to the report and the stock has collapsed by more than 40%, but things are not that bad. The business is still attractive. Let’s consider the evidence.
Firstly, the service will become cheaper. Netflix now offers subscription charges equal to the market prices. However, by creating family accounts with advertising (it will reduce the subscription cost per person), the company can attract new subscribers.

Cost of monthly subscription, comparison of services, $

Data from platform’s websites

Data from platform’s websites
Secondly, projects win hearts of the audience. The company develops local projects in Asian and European countries, which brings them global recognition. For example, the South Korean films alone have won at least 109 awards for the platform.

Quantity of Netflix movie awards by countries

PCMAG

PCMAG
Thirdly, it will retain high market share. Nevertheless, we believe that in the long term, Netflix will not lose significant market share and will remain the largest service by reducing cost and generating unique content.

Dynamics of Netflix subscriptions quantity, mln

Company data, Invest Heroes calculation

Company data, Invest Heroes calculation
Netflix is the leading company in the streaming services market. Despite slower growth and increased competition, the company manages to maintain its position and grow at a rate similar to the market pace. The consensus forecast greatly overestimated its upside – as a result, Netflix failed to meet analysts’ expectations, and its market capitalization fell by almost 40%. Now it creates an excellent investment opportunity for long-term investors, as the upside in share price is 155%.

Netflix valuation

The streaming video market will remain attractive even after complete removal of quarantine restrictions since households have acquired a new habit of enjoying their favorite movies or TV series from the comfort of their own homes. The growing demand for movies via subscription will also be boosted by increasing supply of peripheral devices and smart TVs with pre-installed streaming platforms.
The streaming video market is already highly competitive. Companies will have to compete for the wallet of the consumer in 2022 as well. We consider Netflix to be our favorite because the company will be able to maintain market share by gradually reducing subscription costs and actively generating unique regional content.
This article was written by
Disclosure: I/we have a beneficial long position in the shares of NFLX either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

source

Previous articleFirst Mover Americas: Fear Makes Quick Return to Crypto Markets as Bitcoin Plunges Most in 2 Months – CoinDesk
Next articleNetflix Confirms a Cheaper Ad-Supported Plan is Coming – Thurrott.com
The youngest in team, he is responsible for reporting all the rumors and leaks related to gadgets and software. Other than spreading rumors, Bill also likes to write about social networking and cyber security.