Should Netflix, Inc. Stock Owners Worry About AT&T Inc.’s New Service? (NFLX, T)

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Everyone’s doing it now! Netflix, Inc. (NFLX), which has been a dominant force in streaming video programming for years now, is seeing more and more competitors pop up. And the most recent of them is AT&T Inc. (T), which is launching an over-the-top Internet-based streaming service of its own.

Should Netflix, Inc. Stock Owners Worry About AT&T Inc.'s New Service? (NFLX, T) It’s not the first time the “establishment” TV players have tried to go up against Netflix, so NFLX stock owners shouldn’t take this as an urgent sell signal. Dish Network Corp (DISH) launched Sling TV a while back, and it has done little to thwart the meteoric growth in the number of Netflix subscribers.

But the new multi-tiered AT&T offering still shouldn’t be written off immediately, and it could be a boon to T stock.

DirecTV Now Aimed Squarely at NFLX

The new offering will be marketed under the DirecTV brand, which AT&T acquired last year to increase its standing in the cable TV industry. It’ll be offered in three different packages:

  • DirecTV Now bundle: Consists of live programming, a lot of content, and will have very similar offerings to what DirecTV currently carries
  • DirecTV Mobile: The largest threat to NFLX, featuring on-demand programming. The downside? It’s an app only available for smartphones.
  • DirecTV Preview: A free app with a much smaller selection of shows. Probably just intended to attract users and convince them to upgrade.

T stock owners are hoping that the ease of accessing these services — you’ll just need a broadband connection, and no hardware installation is necessary — will be enough to attract many new users. And, like NFLX , no annual contract is required, so the company is crossing its fingers that will earn some converts.

Of course, while AT&T broadband isn’t required to access these services, AT&T would like you to bundle their services together, and they’ll offer you a discount if you do.

The Real Threat to Netflix Stock

We’ll have to wait and see how AT&T’s streaming efforts play out before judging their impact on Netflix, but I have extreme doubts that this will materially affect Netflix, which has tens of millions of loyal subscribers despite the emergence of competitors like Hulu and SlingTV.

In other words, AT&T’s new scheme won’t hurt Netflix stock in the slightest. But that doesn’t mean I think NFLX shares are infallible. In fact, I think they’re quite vulnerable.

I see the real threats to the NFLX stock price as twofold: one is an operational weakness, another is a market inefficiency:

  • Domestic subscriber growth is decelerating more quickly than expected, and while international growth has been growing at breakneck speeds, Netflix hasn’t figured out how to actually make money on international ops — meaning the company could have years of limited profitability ahead of it.
  • Netflix’s amazing run in 2015 has left the stock extremely overpriced, and it will have to execute nearly perfectly going forward to justify its valuation. With growth stocks unlikely to be popular in 2016 as investors seek risk-averse assets, NFLX stock could be in for a rough year.

As for AT&T, it’s smart to embrace streaming more openly. That’s the way consumer behavior is moving, and cable companies that ignore this will simply bleed subscribers over time. It was a necessity to diversify into OTT programming, and they’ve finally done it. For that, they deserve a pat on the back.

Just don’t expect it to be material to the T stock price.

As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/03/netflix-nflx-stock-att-t-streaming-directv-now/.

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