Does Netflix Have Two More Reasons to Worry?

It seems the road for Netflix (NFLX) is getting rockier by the day. Its mixed third-quarter results couldn’t impress the market, and its stock has been under pressure since then. The company, which is now preparing for the imminent streaming wars, has been caught off guard by a new development.

On October 22, Verizon announced a partnership with the Walt Disney Company (DIS) whereby it will provide a year of free Disney+ access to its customers. These include Verizon’s unlimited wireless customers, 5G home wireless Internet users, and new Fios broadband customers. Eligible customers will be able to stream Disney+ on their connected TVs as well as their mobile devices.

Investors couldn’t keep calm, and Netflix stock fell 4.09% to close at $266.69 on October 22. On October 17, the stock touched $293.35, its highest level in the month. It’s lost more than 9% since then.

What does the Verizon-Disney deal mean for Netflix?

Until now, it was only Apple that was offering a 12-month free trial of Apple TV+ for new Apple device buyers. But Disney+ has now joined in. According to Verizon, it already has 50 million wireless customers eligible for the plan, and its numbers in the US are growing.

This development means that both Netflix’s emerging streaming competitors have impressive game plans at the ready. While Apple made its plan to leverage its ecosystem known at the outset, Disney’s deal with Verizon was well timed. Netflix is no stranger to such partnerships, though. Since 2017, T-Mobile (TMUS) has offered a free standard Netflix subscription to its family-plan customers as a part of an exclusive deal. However, it’s important to note that unlike the Verizon-Disney deal, this isn’t a promotional strategy. In 2017, Netflix already had an established subscriber base.

Apple has made its Apple TV app available on Roku (ROKU) so that viewers can stream Apple TV+ even on other devices. Disney+ will also be available on multiple platforms, such as the iPhone, Android, Roku, PS4, and Xbox. Disney forecasts the addition of 60 million–90 million subscribers by 2024. Morgan Stanley expects Disney+ to add 70 million subscribers by 2024. Meanwhile, Barclays, which is extremely bullish on Apple TV+, expects it to add 100 million subscribers in the first year alone.

Netflix has been able to build its current subscriber base of 158.3 million over a decade. But both Apple TV+ and Disney+ already have robust subscriber bases even ahead of their launches, which should make it easier for them to scale their viewerships up rather quickly. As for Netflix, its quest to retain its subscribers or grow its base will be an uphill battle.

Hollywood-backed Quibi partners with T-Mobile

In another development, Quibi, a mobile streaming service, recently inked a deal with T-Mobile to distribute its content. T-Mobile has close to 83 million customers, a number that’s likely to increase once the much-anticipated T-Mobile–Sprint merger goes through. Quibi is backed by Hollywood’s Jeffrey Katzenberg and former Hewlett Packard Enterprise CEO Meg Whitman. Quibi, which is slated to launch in April 2020, has niche programming. It will produce bite-size, mobile-only content aimed at Millennials.

A war of content

On the content front, Apple TV+ is betting heavily on originals, while Disney+ will have a unique direct-to-consumer element, with its classic movies and franchises available for direct viewing. Meanwhile, Netflix also has an exciting line-up of content slated for November, including Martin Scorsese’s The Irishman, The Crown 3, The Man Without Gravity, and The King.

Should Netflix be worried?

In its recently released third-quarter results, Netflix acknowledged that competitive pressures would affect it in the short term. However, CEO Reed Hastings said that there’s enough space in the market for all streaming players to thrive, and it’s not a zero-sum game. Netflix’s subscriber growth data has long been under scrutiny—more so since the second quarter, when it lost 126,000 US subscribers due to a price hike.

In the third quarter, the situation was a lot better. The company posted only a slight miss on its US subscriber growth guidance. Netflix estimated the addition of 7 million domestic paid members, and it saw 6.8 million new additions. Its international subscriber growth was higher than expected, though. In its fourth-quarter guidance, Netflix was slightly conservative about its expected US subscribers.

Netflix has a strong belief in its abilities and is ramping up its strategies ahead of the streaming wars. On October 22, it raised an additional $2.2 billion in the bond market toward new content development and potential acquisitions. Hunter Martin from CreditSights predicts the streaming giant will raise another $2 billion–$2.5 billion in 2020.

However, investor confidence in the streaming giant is now shaky, which makes it all the more important for Netflix to prove itself. With Disney+ and Quibi entering into promotional mobile partnerships, Netflix has to improve its strategy to gain subscribers. The next two months—especially the holidays—will be truly crucial for Netflix. This period will enable a fairer comparison of Netflix to Apple TV+ and Disney+ and gauge its long-term prospects.