There has been some worry that Netflix (NASDAQ: NFLX) would need to counter Apple’s (NASDAQ: AAPL) new streaming service. Many analysts have pointed to the advantage which Apple enjoys in the installed base, control over platform and huge cash pile. But Netflix also has an upper hand in important areas which should help Netflix stock.

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Netflix boasts of the biggest content budget among all the streaming entrants and by a big margin. It has also developed a strong following for its original content.

Netflix does not have to worry about its brand image in the way Apple and Disney (NYSE: DIS) have to. This should allow the company to try with new themes which are out of bounds for these new entrants. However, the biggest advantage for Netflix is in the level of investments it can make over the next few years without worrying about margins. This is not a luxury for Apple, Disney or AT&T (NYSE: T).

Where Does Netflix Stand?

Netflix has been a leader in the streaming industry for the past few years. This has helped Netflix stock deliver great returns. It has grown the overall market size by launching streaming service in 190 countries.

At the same time, the service’s pricing has been kept at a level reasonable to subscribers in all regions outside U.S. Netflix has also delivered original content which is on par or better than those produced by traditional media companies. This has helped the company in increasing its profile during Emmy Awards.

Netflix’s enviable success has attracted other giants who are facing a slowdown in their core business. Apple will be launching its own streaming service. It will be trying to leverage the 900 million users on its platform to gain subscribers.

Apple has a huge cash pile to invest and has a highly loyal user base. This has allowed to company to show decent growth in Apple Music. By launching a combo of video, music and news, Apple can improve the value proposition of its subscription service.

But the biggest challenge faced by Apple is the brand image. The company will never try to launch content that could hurt its premium brand image. Netflix does not face this issue. It is difficult to imagine a series like House of Cards or Orange is the New Black from Apple. Recent reports also suggest that Apple executives have been interfering in the production of content to ensure that the content resonates with the brand. This is a big challenge for Apple and even for Disney.

Wiggle Room and Netflix Stock

Another big advantage available with Netflix is Wall Street expectation from the company. It has taken several years for Netflix to build the trust of Wall Street in the heavy cash burn policy of the company. The current estimates project a content budget of a whopping $15 billion in 2019. This will be an increase from $12 billion spent in 2018. Apple’s answer was to start its video service by investment of $1 billion in content.

It is unlikely that Apple or Disney would be able to come close to this level of expenditure on content. Besides the cash burn rate, Netflix also has an advantage in terms of lower expectation of margins in the near future. If there is a pricing war in terms of subscription cost, Netflix can sustain lower prices for a longer time.

It would be difficult for Apple, Disney or AT&T to report declining margins due to investments in video streaming for a number of quarters. A bigger content budget and lower expectation for margins are a big advantage for Netflix stock.

Apple is already facing declining operating margins. It has shown a fall in operating margin in 12 out of the past 13 quarters. In the recent quarterly report, the company reported operating margin decline of 207 basis points from the year ago quarter. It takes a longer period of time to get returns from investment in content.

It is unlikely that either Apple, Disney or AT&T’s management can afford major losses in their streaming business for more than a few quarters.

Different Pricing and Partnership Options

Netflix can try different pricing options to retain its subscribers. In the past few years, it has done a decent job in showing price growth for its subscription.

Source: MIDIA Research

We can see in the above chart that Spotify (NYSE:SPOT) has not been able to keep up with the inflation adjusted cost of its service. On the other hand, Netflix has shown a better price jump. The main reason behind this difference is Netflix’s investment in original content. This has made the service more sticky giving decent room to increase prices.

Netflix will not be a part of Apple’s video service. Apple will be charging a heavy commission from other third-party content providers to stream their content on Apple’s video service. Again, over a long run, this can be useful for Netflix as it can divert the savings from this commission in building a better content platform.

A lot depends on the reception of Apple’s video service. In a worst-case scenario for Netflix stock, if Apple gains a lot of subscribers quickly, Netflix can attract partnership with other players. The bullish sentiment towards Netflix stock can take a short term hit as Apple, Disney and AT&T enter the field. But over the long run, Netflix can gain an upper hand over these giants.

Investor Takeaway on Netflix Stock

Netflix is going to face increase in competition with the launch of streaming service by Apple and Disney. But there are a number of advantages with Netflix. It can try to explore new themes which would be very difficult for both Apple and Disney. Netflix has built a strong original content library. It would take Apple several years before it reaches anywhere near this level.

Netflix also has a lot of wiggle room with the Wall Street in terms of delivering margins. It is unlikely that Apple, Disney and AT&T can afford a sustained period of losses in streaming which negatively impact their overall margins and profitability. Hence, Netflix does not face an existential threat due to the launch of new services by these giants.