Netflix (NASDAQ: NFLX) investors find themselves in unfamiliar territory in 2019. Netflix stock is down 24% in the past six months, mostly on fears that new competitors will slow Netflix’s growth.
New streaming offerings from Apple (NASDAQ: AAPL), Facebook, (NASDAQ: FB) and AT&T (NYSE: T) pose a threat to NFLX stock. But Netflix is about to face its stiffest streaming competition to date in Walt Disney (NYSE: DIS).
Disney+ is set to launch on Nov. 12. In addition to its impressive library of content, the basic Disney+ plan will cost just $7 per month, a nearly 50% discount to Netflix’s standard $13 monthly plan.
Fortunately for investors, a new survey of users suggests Disney+ is not an immediate threat. However, I believe Netflix could potentially not know just how much of a threat Disney+ actually is for years to come.
Survey REsults and Netflix Stock
The good news for NFLX stock investors comes from a new survey conducted by Bank of America. Bank of America found that only 5% of American Netflix subscribers surveyed intend to cancel their subscription when Disney+ launches.
The same survey found that 27% of Netflix subscribers intend to get a Disney+ subscription. That number suggests nearly one in four U.S. Netflix subscribers plan to have both subscriptions.
In fact, among all respondents, 59% said they plan to have multiple streaming services compared to just 17% who plan on having just one. Only 24% of respondents don’t plan on having a paid streaming video subscription.
More children’s content (29%) and better content (25%) were the top reasons Netflix subscribers gave for subscribing to Disney+.
Bank of America also looked at the most popular reasons Netflix users cancel their subscriptions. Price was the biggest deterrent, with 40% of respondents saying Netflix is too expensive following its recent price increases.
The same survey also confirmed that Disney is seemingly Netflix’s biggest threat these days. Just 9% of respondents said they will “most likely” get an Apple TV+ subscription and only 6% said they will most likely get an HBO Max subscription among respondents aware of these services.
Bank of America analyst Justin Post says the survey results are bullish for NFLX stock. Post says the numbers suggest Disney+ is not a significant near-term threat.
“Netflix is likely to see some incremental churn from new competition – but it will be modest,” he says.
The 5% of Netflix subscribers that claim they will cancel Netflix for Disney+ are within Netflix’s average quarterly churn of about 6%. In addition, the percentage of survey respondents that claim they will cancel a service or switch to a competitor is typically higher than the actual number that end up doing it. Scientifically speaking, this phenomenon occurs because people tend to be lazy.
In light of the survey, Post says investors shouldn’t hesitate to buy the dip in Netflix stock ahead of the Disney+ launch.
“We continue to see Netflix as a staple in TV streaming and we think Netflix’s 4Q subscriber guidance was reasonably conservative,” Post says.
Bank of America has a “buy” rating and $426 price target for NFLX stock.
A Delayed Threat to Netflix Stock
I happen to disagree with Post’s conclusions to a certain extent. I agree with him that Netflix’s fourth-quarter numbers will likely not take a big hit from Disney+. In fact, Netflix’s Q4 report in early 2020 may even trigger a relief rally in the lagging shares. But I wouldn’t recommend investors write the Disney+ threat off so quickly.
The two most important numbers for me in the survey are the 27% of Netflix subscribers that plan to have both subscriptions and the 40% of respondents who say Netflix is already too expensive.
Customers that carry both Netflix’s standard plan and a Disney+ subscription will soon be paying $20 per month in combined subscription fees. Most of those subscribers are also presumably paying $13 per month for Amazon Prime, which grants them access to Prime Video streaming.
With the economy booming, most Americans have no problem paying for multiple streaming subscriptions along with the other bills. The challenge for Netflix will be hanging onto subscribers during the next economic downturn.
A recession is bad for companies across the board, but some get hit harder than others. I’m guessing when money gets tight and Americans are forced to choose which service to cut, it will be the more expensive service that will not trigger a temper-tantrum from their kids if they lose it. I guarantee Americans won’t cut Amazon Prime these days. Do they really need three streaming services?
In other words, Disney+ may not be a threat to Netflix stock today. But how market share shifts throughout the next economic cycle could reveal a different story in years ahead. NFLX stock may be a buy ahead of Q4 earnings in January. However, longer-term Netflix stock investors shouldn’t be so quick to write off Disney+ as a threat just yet.
As of this writing, Wayne Duggan did not hold a position in any of the aforementioned securities.