DIS

Walt Disney Company (The)

94.33
USD
-3.20%
94.33
USD
-3.20%
90.23 179.63
52 weeks
52 weeks

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Here's Why Netflix Stock May Be Riskier Than You Think

Netflix (NASDAQ: NFLX) still stands above all the other streaming networks, with 220 million subscribers and $8 billion in revenue. However, it continues to take a beating from the many other streaming companies that are trying to topple it and capture market share. While it tackles these issues from atop its precarious perch, there's a major drawback that it has compared to almost all of its competition -- and it makes owning Netflix stock look a bit risky right now. A completely new streaming landscape Let's walk back a few steps to see what led to this situation since Netflix didn't change, but the world has. Disney had Disney+ in plans before the pandemic, and it was first launched in the U.S. in November 2019, just prior to COVID-19. The unforeseen circumstances that followed had a massive effect on the streaming industry. Disney+ was adopted at a greatly accelerated rate, Netflix itself enjoyed unusually high subscriber growth, and several other studios jumped on the bandwagon with their own streaming services to grab a piece of the pie. The results is that there is now a flooded market, with many services that are not differentiated (save for which titles they feature). It also means that Netflix may be in trouble. Not only did its subscriber growth fall, but subscriber count actually fell in the 2022 first and second quarters. Netflix still has a lot going for it, so far retaining the highest subscriber count. It continues to roll out popular original content that's drawing new subscribers in some regions, and it has remained profitable, as well as cash flow positive. However, as competitors make inroads and subscriber count falls, Netflix has had to change its model to stay competitive. It recently added gaming services to its platform, and it's in the process of working out a free, ad-supported version similar to Roku to add revenue and keep more viewers. However, there's something else it's missing that could be a key ingredient in a winning model. What other streamers have in common -- and Netflix doesn't Leaving out Roku, the other major streaming channels are Disney+, HBO Max, Peacock, Paramount+, Amazon Prime, Apple TV+, and Discovery+. That's a lot of competition for the same dollars. Out of all these, the only one besides Netflix that doesn't come along with a film production studio that releases to theaters is Apple. Disney owns several studios, including Marvel and Pixar, in addition to the Disney label. Both HBO Max and Discovery+ are owned by the newly created Warner Bros Discovery. Peacock is owned by Comcast, which owns Universal Studios, Paramount+ is owned by Paramount (NASDAQ: PARA), and Amazon recently acquired MGM Studios. At various points in time, Netflix had deals with many of these companies to stream their content on its platform. However, many of the studios have pulled their content from Netflix to stream on their own channels. With some exceptions, much of Netflix's content at this point is from its own studios.The benefit of that system is that Netflix can send its content straight to streaming, which is a good thing for subscribers. It also makes for fresher content instead of recycled content from other studios. However, it also becomes very expensive. And that's where Netflix's competitors have an advantage. The studio-owned streaming sites -- which are all of the above except for Netflix, Roku and Apple -- take billions of dollars in proceeds at the box office. That goes a long way toward covering production expenses before bringing content to streaming, and that operational model gives them more resources to cover straight-to-streaming content as well. If Netflix wants to be able to compete with these studios, it needs the resources to produce content on the same level as the major studios. Prior to the pandemic, it was moving in that direction. But with all the streaming companies pouring money into new content to capture market share, Netflix has also raised its content spending, without the benefit of ticket sales to cover costs. I first noted this as an advantage for Disney, but the new management at Warner Bros Discovery is moving to make the most of the model as well. It recently said that it would focus on sending more feature films to theater before streaming, and it's also entertaining the idea of launching an ad-supported tier. Without the option of sending films to theaters, Netflix will have a much harder time recouping costs for high-caliber films. And if it wants to stay competitive, it needs high-caliber content. What are Netflix's options? So far, Netflix is taking the other approach -- moving toward the ad-supported model to get more viewers and make money in other ways, a similar model to Roku. Roku's advertising business is strong, enough so that it was able to roll out its own original content last year. They have been a great success with viewers, and Netflix may succeed this way, with an ad-supported tier, as well. Does it make sense for Netflix to release its films to theaters? That's another avenue it might be pursuing. It has done so in a limited way in the past, and according to Bloomberg, it's in talks with AMC (NYSE: AMC) and Cinemark Holdings (NYSE: CNK) about a trial run for some of its upcoming releases. The only network we didn't talk about is Apple, which is unique because it's a streaming-only studio attached to another business. It's also not banking on a huge library to capture viewers. So while it may be losing tons of money on the service, it's negligible on Apple's total business. Where does all this leave the top streaming provider? I would say Netflix is in a risky place right now as it struggles to find its footing again, and investors should keep that in mind. 10 stocks we like better than Netflix When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* They just revealed what they believe are the ten best stocks for investors to buy right now... and Netflix wasn't one of them! That's right -- they think these 10 stocks are even better buys. *Stock Advisor returns as of August 11, 2022 John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jennifer Saibil has positions in Walt Disney. The Motley Fool has positions in and recommends Amazon, Apple, Netflix, Roku, and Walt Disney. The Motley Fool recommends Comcast and Warner Bros. Discovery, Inc. and recommends the following options: long January 2024 $145 calls on Walt Disney, long March 2023 $120 calls on Apple, short January 2024 $155 calls on Walt Disney, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc. Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off. Today’s Big Picture Asia-Pacific equity indexes ended today’s session down across the board. India’s Sensex ended the day essentially flat, down 0.06%, China’s Shanghai Composite and Australia’s ASX All Ordinaries declined 0.54% and 0.55%, respectively while Japan’s Nikkei fell 0.65%, Taiwan’s TAIEX dropped 0.74% and South Korea’s KOSPI declined 0.90%. Hong Kong’s Hang Seng led the way, down 1.96% on a broad selloff led by Health Technology and Health Services names while Transportation and Communications sectors provided the only relief. By mid-day trading, major European equity indices are down across the board and U.S. futures point to a positive open later this morning. At 8:30 AM ET, the much anticipated July Consumer Price Index (CPI) report was released: The headline figure for the month was expected to fall to 8.7% from June’s blistering 9.1% reading with core CPI that excludes food and energy ticking higher to 6.1% in July vs. 6.0% the prior month. The actual numbers show that inflation hit 8.5%, and core inflation was 5.9%. With the national average retail price for a gallon of gas falling through late June and July from its June 14 high of $5.016 per gallon per data from AAA, forecasters had expected the month over month decline in the headline CPI for July. The July Employment Report also showed wage inflation ran hotter than expected during the month. Let’s also keep in mind that we will be facing a “wash, rinse, repeat” cycle when it comes to inflation data and expectations for the Fed given tomorrow’s July Producer Price Index report. Data Download International Economy Producer prices in Japan rose by 8.6% YoY in July, compared with market forecasts of 8.4% and following an upwardly revised 9.4% the prior month. While marking the 17th straight month of producer inflation, the latest reading was the softest since last December. China's annual inflation rate rose to 2.7% in July from 2.5% in June and compared with market forecasts of 2.9% but even so the July figure marked the highest reading in the last year. The country’s Producer Price Inflation figure for July eased to a 17-month low of 4.2% YoY from 6.1% the prior month and less than the market consensus of 4.8%. Annual inflation rate in Germany was confirmed at 7.5% YoY for the month of July, down slightly from June’s 7.6% reading but still above the March and April figures of 7.3%-7.4%. The annual inflation rate in Italy slowed to 7.9% YoY in July from June’s 8% reading matching expectations for the month. While energy prices declined, prices for food and transportation rose at a faster pace. Domestic Economy This morning we have the usual Wednesday weekly reports for MBA Mortgage Applications and Crude Oil Inventories from the U.S. Energy Information Administration. At 10 AM ET, Wholesale Inventories for June will be published, and the figure is expected to rise 1.9%. While investors and economists will keep more than a passing interest in those reports and data, as we discussed above, it will be the July Consumer Price Index report at 8:30 AM ET that will shape not only how the US stock market opens today, but also expectations for the Fed’s next course of monetary policy action. The U.S. Energy Information Administration (EIA) expects domestic production of crude oil, natural gas and coal will all increase next year compared with this year. It forecast US crude production rising 6.7% to an all-time annual high 12.7M bbl/day in 2023 from 11.9M bbl/day in 2022, US natural gas output climbing to 100B cubic feet (cf)/day from 97B cf/day, and US coal production inching up to 601M short tons in 2023 from an expected 599M this year. The EIA also modestly increased its 2022 average nationwide gasoline price forecast to $4.07/GALLON vs. $4.05 if called for last month. It now also sees 2023 prices at $3.59/GAL vs. its previous forecast of $3.57. Markets Stocks continued in their holding pattern waiting for the latest CPI print save for some fundamental stories pushing Technology names and small caps around. The Dow and the S&P 500 were down slightly at 0.18% and 0.42%, respectively while the Nasdaq Composite dropped 1.19% and the Russell 2000 closed down 1.46% on the day. Energy names led the way yesterday but were overpowered by Technology and Consumer Discretionary sectors. Here’s how the major market indicators stack up year-to-date: Dow Jones Industrial Average: -9.81% S&P 500: -13.51% Nasdaq Composite: -20.14% Russell 2000: -15.83% Bitcoin (BTC-USD): -52.08% Ether (ETH-USD): -55.38% Stocks to Watch Before trading kicks off, CyberArk (CYBR), Fox Corp. (FOXA), Jack in the Box (JACK), Nomad Foods (NOMD), Vita Coco (COCO), Tufin Software (TUFN), and Wendy’s (WEN) will be among the companies issuing their latest quarterly results and guidance. At 9 AM ET, Samsung (SSNLF) will hold its Galaxy Unpacked 2022 at which it is expected to introduce new Galaxy foldable smartphone models, a new Galaxy Watch, and Galaxy Buds. Shares of advertising technology platform company The Trade Desk (TTD) jumped after the company reported quarterly results that topped expectations and guided current quarter revenue above the consensus forecast. The RealReal (REAL) reported a smaller than expected bottom line loss for its June quarter as revenue for the period rose 47.2% YoY to %154.44 million, topping the $153.99 million consensus. However, the company issued downside guidance for both the current quarter and 2022. Revenue for the September quarter is now expected to be $145-$155 million vs. the $164.3 million consensus; for the full year of 2022, revenue is forecasted to be $615-$635 million vs. the $653.7 million consensus. Shares of Coinbase Global (COIN) moved lower after it reported June quarter results that missed top and bottom line expectations. Revenue for the quarter fell 63.7% YoY as Total trading volume fell 53.0% YoY and 29.8% sequentially to $217 billion. Monthly Transacting Users (MTUs) grew 2.3% YoY but fell 2.2% sequentially to 9.0 million. For the current quarter, Coinbase sees the number of MTUs trending lower sequentially and total trading volume to be lower compared to the June quarter. Shares of Sweetgreen (SG) tumbled in aftermarket trading last night after the company missed quarterly revenue expectations, lowered its 2022 forecast, announced it will lay off 5% of its workforce, and downsize to smaller offices. ChipMOS TECHNOLOGIES (IMOS) reported its July revenue was $65.1 million, a decrease of 19.4% YoY and down 7.7% MoM. Taiwan Semiconductor (TSM) reported its July revenue increased 49.9% YoY to NT$186.76 billion, which equates to a 6.2% MoM improvement. Electric vehicle subscription startup Autonomy placed a $1.2 billion order for 23K electric vehicles with 17 global automakers, including BMW (BMWYY), Canoo (GOEV), Fisker (FSR), Ford (F), General Motors (GM), Hyundai (HYMTF), Lucid Group (LCID), Mercedes-Benz (DDAIF), Polestar (PSNY), Rivian (RIVN), Stellantis (STLA), Subaru (FUJHY), Tesla (TSLA), Toyota Motor (TM), VinFast, Volvo Car (VLVOF) and Volkswagen (VLKAF). IPOs As of now, no IPOs are slated to be priced this week. Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page. After Today’s Market Close Bumble (BMBL), CACI International (CACI), Coherent (COHR), Dutch Bros. (BROS), Red Robin Gourmet (RRGB), and Walt Disney (DIS) are expected to report their quarterly results after equities stop trading today. Those looking for more on which companies are reporting when, head on over to Nasdaq’s Earnings Calendar. On the Horizon Thursday, August 11 Germany: Thomson Reuters Ipsos Monthly Global Primary Consumer Sentiment Index - August US: Weekly Initial & Continuing Jobless Claims US: Producer Price Index – July US: Weekly EIA Natural Gas Inventories Friday, August 12 Japan: Thomson Reuters Ipsos Monthly Global Primary Consumer Sentiment Index - August China: China Thomson Reuters Ipsos Monthly Global Primary Consumer Sentiment Index - August Eurozone: Industrial Production - June US: Import/Export Prices – July US: University of Michigan Consumer Sentiment Index (Preliminary) – August Thought for the Day “The release date is just one day, but the record is forever.” ~ Bruce Springsteen Disclosures Tufin Software (TUFN), CyberArk (CYBR) are constituents of the Foxberry Tematica Research Cybersecurity & Data Privacy Index Canoo (GOEV), Fisker (FSR), Lucid Group (LCID), Rivian (RIVN), Tesla (TSLA), Vita Coco (COCO) are constituents of the Tematica BITA Cleaner Living Index Canoo (GOEV), Fisker (FSR), Lucid Group (LCID), Rivian (RIVN), Tesla (TSLA), Vita Coco (COCO) are constituents of the Tematica BITA Cleaner Living Sustainability Screened Index The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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