Here Is Why Both Apple TV+ & Disney+ Should Bother Netflix

Competition in the video-streaming market has been intensifying, particularly for the incumbent Netflix (NASDAQ:NFLX) , with Apple (NASDAQ:AAPL) announcing its Apple TV+ service, set to launch this fall, and Disney’s (NYSE:DIS) upcoming Disney+.

Although Apple’s Mar 25 event didn’t provide much detail about pricing or overall spending, the news has definitely spooked Netflix investors. Since the event, Netflix shares have declined 2.6%, underperforming Apple, Disney and the S&P 500’s increase of 0.7%, 3% and 1.2%, respectively.

Notably, Disney is expected to provide details of Disney+ streaming service during its Investor Day, scheduled to be held on Apr 11.

We believe both Apple TV+ and Disney+ pose significant threats to Netflix, which currently has 139 million subscribers, globally. While Disney’s vast and diversified content library makes Disney+ a game changer in the streaming industry, Apple’s massive installed base of iOS devices and huge cash reserves are difficult to ignore as well.

Although Netflix has outperformed on a year-to-date basis, the stiffening competition is anticipated to negatively impact this Zacks Rank #3 stock’s growth prospects. In addition, the company is burning cash fast (free cash outflow of $3 billion in 2018, similar rate at 2019), which is a massive headwind, for the long haul.

Year-to-date Price Movement

Here, we dig a little deeper to fathom out growth prospects of Apple TV+ and Disney+ in the streaming market.

Apple’s Solid Installed Base: Key Catalyst

Apple TV+ is an ad-free service that will offer original movies, shows and documentaries. The company’s strong installed base of more than 1.4 billion active devices is the key differentiator. As noted by Yahoo (NASDAQ:AABA) Finance, 10% of this installed base signing up for Apple TV+ ensures more than 100 million subscribers, which is definitely possible given Apple's brand value and loyal clientele.

Apple has stated that the increasing percentage of users paying for at least one of its services has been a major growth factor, driving Services revenues in recent times. The company also stated that the launch of fresh services has attracted users. We expect this momentum to continue for Apple TV+ as well.

Although Apple didn’t provide any detail about the streaming service’s content line-up, its collaborations with Hollywood celebrities like Oprah Winfrey, Steven Spielberg, Jennifer Aniston, and Reese Witherspoon, among others, promise grandeur.

Further, Apple is opening up its ecosystem which will likely expand its user base. Notably, the Apple TV app will be available on Samsung (KS:005930) smart TVs, beginning this spring. It will also be available on Amazon (NASDAQ:AMZN) Fire TV, LG, Roku, Sony and VIZIO platforms in the near future.

Moreover, Apple TV+ service is expected to be competitively priced that will help this Zacks Rank #3 stock to gain market share.

Currently, Netflix has a three-tier pricing structure, starting from $8.99 (Basic plan) to $15.99 (Premium plan). The company is testing cheap mobile-only plans in price-sensitive markets of India and South East Asia.

Hulu, which has 25 million subscribers, offers its basic ad-supported plan at $5.99 per month and the ad-free plan at $11.99. Disney, Comcast (NASDAQ:CMCSA) and AT&T (NYSE:T) have stakes in Hulu.

Furthermore, Apple’s massive cash trove of $245 billion (as of Dec 29, 2018) provides it a competitive leverage not only over Netflix but also Disney.

Disney’s Content Portfolio Major Driver

Notably, Disney+ is estimated to on-board 160 million subscribers worldwide, per J.P. Morgan, quoted by CNBC. However, per a recent survey conducted by the Wall Street brokerage firm SunTrust Robinson Humphrey, Disney+ doesn’t pose much risk for Netflix.

However, we believe Disney to be a serious contender due to its impressive library of movies, along with investments in original content. This makes Disney+ a game changer in the streaming market.

Disney+ will host a rich array of original Disney, Pixar, Marvel, Star Wars and National Geographic content. Moreover, all of Disney’s movies, from 2019 onward, will be available on Disney+. The company is expected to lose revenues of $300 million as it stops distributing these content to Netflix. Reportedly, Netflix's contract with Disney ends at the end of this year.

Additionally, to ramp-up its content portfolio and cater to consumer demand, Disney is buying content from other providers. Furthermore, acquisition of Fox has strengthened this Zacks Rank #3 company’s film and TV slate. You can see the complete list of today’s Zacks #1 Rank stocks here.

Conclusion

Investors should note that Netflix considers Epic Games’ Fortnite as its closest competitor instead of AT&T’s HBO. In fact, video-game streaming is attracting a considerable number of subscribers, which further intensifies competition for media and tech companies entering the streaming market.

Nevertheless, the war for streaming dominance has gained significant magnitude with the entry of tech and media companies. Although Netflix still holds the leading position, Apple TV+ and Disney+ are tough contenders.

Apart from Apple and Disney, AT&T and Comcast are also gearing up to be major video-streaming providers. AT&T’s investment on HBO and Comcast’s acquisition of Sky TV are noteworthy in this regard.

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