Streaming giants: trading 2023 stocks
06 January 2023
2022 was not the most memorable year for Hollywood and many other media producers. Disney box office disasters came one after another, billion-dollar Amazon and Netflix series releases got rejected by fans. The fails were epic and carved into the trading charts with ferocity. Will 2023 be more of the same? Let’s speculate on what’s to come and how traders can better recognize opportunities.
Streaming companies are tightening the budgets
Disney, Netflix, Amazon Prime, and Apple TV+ are all competing for highly lucrative global consumer attention, often referred to as the streaming wars. It’s been big business since the pandemic lockdown, but there seems to be a shift in streaming content that is shaking the industry.
Streaming services are always trying to outdo each other, investing billions of dollars to produce high-quality original content to convince consumers to sign up or switch services. But streaming subscriber growth has slowed this year, and the word around town is that the combined streamer audience has hit market saturation. That means acquiring new subscribers involves taking them from a competitor. If they are going to be successful, these streaming giants need to stand out from the crowd.
Disney+ has started releasing episodes weekly to stop subscribers from canceling after binge watching must-see shows. Disney is raising prices on their streaming services to combat revenue losses and vows to produce more of the same content in 2023. A bizarre approach since much of last year’s content bombed at the box office, on the rating sites, and on the Disney+ platform. It’s hard to imagine how increased cost and a repeat of the flops will work in their favor.
Netflix also increased subscription prices and cracked down on password sharing as a way to reduce costs. Changes that were met negatively by Netflix viewers. The service is also set to continue new seasons of epically failing shows, with total disregard for viewer feedback. Unless Netflix comes up with some amazing new franchises, long NFLX holders may feel a squeeze throughout 2023.
Amazon Prime Video doesn’t have any planned subscription hikes, and it is adding live sports events into the mix which could be a game changer. They are very “number 3” right now, but AMZN traders might want to keep their finger on that pulse.
What should traders keep an eye on? Everything, but the real indicators might not be on the charts.
The biggest source of revenue
Netflix started offering an online subscription video streaming service in 2007. In 2013, its own studio produced the hit TV show House of Cards, and Netflix rallied to put more big budget originals at the top of its revenue model.
Off the back of this success, Netflix built a studio. The success of Stranger Things, Money Heist, Bridgerton, and Squid Game cemented Netflix's position as the king of streaming. It was even viewed as a monopoly risk and a threat to the legacy of the media industry. But that was naive and short-term thinking.
Wall Street investors fell in love with streaming and companies around the world invested billions of dollars to launch competing streaming services. Rivals like Amazon, Apple, and Disney have benefited from those costly trials and tests that Netflix endured, and they got a free quick-start to fast money. Now they are strong enough to fight.
The streaming wars start in 2023
The lockdown set the stage for stay-home life in 2020. Before that, it had taken Netflix ten years to reach 100 million subscribers. And then, in 2020, it acquired 36 million in a single year.
When Disney+ launched at the end of 2019, it was perfect timing, eventually acquiring 100 million subscribers in just 16 months. It was a huge success. Investors believed that Disney+ was the perfect lockdown companion, and share prices rocketed 30%. That was the streaming boom. Now comes the reality.
In 2022, the operating income loss at Disney was a staggering $1.1 billion. But Disney was not the only disaster.
Netflix shares fell by 60% last year and investors lost interest after seeing subscribers numbers dry up. Netflix once had a potential market of 800 million households, but now has a market of 220 million. Despite its huge spending, Netflix is not able to keep its customers loyal, with many unsubscribing after the most recent releases were met with negative publicity.
Apple no longer offers a free year of streaming service with the purchase of an Apple device. There are no show or movie releases with major weight coming out in 2023… yet, which is definitely going to affect subscriptions and revenue. In addition, last year’s 40% price hike didn’t go well with the subscribers. Running a simple web search of “apple TV subscription” reveals 30% of results now show “how to cancel Apple TV.”
So, streaming companies suffered massive losses, and the viewer market cap is finally established. Let the battle commence.
Trading the streaming evolution
Content remains the best way to attract and keep loyal subscribers, and streaming companies heavily rely on blockbuster releases. Netflix plans to build a franchise around its popular Squid Game show among others, a dedicated $19 billion spend for 2023. Disney will spend a whopping $33 billion on content, including ESPN, Marvel, Pixar, and Star Wars. Wall Street is looking at balance sheets and focusing on revenue — and they don’t like the disturbing trends.
To trade AAPL, NFLX, and AMZN, you’d be wise to watch more than the charts and economic releases. Follow the TV and movie releases on Apple TV, Netflix, and Amazon Prime Video. The big budget releases are the key factors to focus on.
How much did the release cost to create? Are the subscribers watching the TV shows after the 3rd episode? Are the reviewers celebrating the new content, or are they reporting flops?
When a company releases a rotten tomato, investors get cold feet, general sentiment turns bearish, and the charts often reflect the failure with little delay. Quarterly revenue reports that follow will also reflect the content performance and further influence prices.
If the streaming company is putting out low-quality content, the charts will react. If you're going to trade streaming companies, turn on the TV and see what’s on.