WHAT YOU NEED TO KNOW
  • Netflix shares fell 11% in September and are down 23% since the beginning of the year, while the S&P 500 has gained 13%.
  • YouTube captured a record 14.2% share of US television time in July, while Netflix fell to a multiple year low of 7.8%.
  • Netflix missed second quarter sales estimates, issued cautious third quarter guidance, and recorded only 2% growth in viewing hours during the first half.
  • HSBC said YouTube is attracting leading creators with direct financing, larger payouts, priority marketing, and exclusivity agreements.

DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.

Netflix shares are taking a bruising as investors confront fresh uncertainty about the streaming company’s path to future growth. The stock fell 11% in September, according to Yahoo Finance AlphaSpace data, extending its decline since the start of the year to 23%.

That performance stands in sharp contrast with the broader stock market. The S&P 500 has gained 13% during the year, leaving Netflix shareholders behind while investors continue selling the streaming giant’s shares.

The pressure follows Netflix’s failure to complete a deal for Warner Bros. The company will now officially end up with Paramount, while Netflix investors are left weighing what comes next for the platform and its growth prospects.

Cautious comments from Wells Fargo attracted attention during the week, but a new HSBC note presented another concern for remaining Netflix bulls. HSBC analyst Mohammed Khallouf focused on the widening competition between Netflix and Google’s YouTube for television viewing time.

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"YouTube has been rapidly expanding its living room footprint, having captured a record 14.2% share of US TV time (+80bps year over year) this July," HSBC analyst Mohammed Khallouf wrote. "This momentum is increasingly coming at the direct expense of Netflix as its share fell to a multi-year low of 7.8% (-100bps year over year)."

"YouTube has been benefiting, in our view, from a declining reception to NFLX's original content. Near-term recovery in engagement looks unlikely."

Those figures show YouTube reaching a record share of television time as Netflix falls to its lowest share in multiple years. Khallouf directly connected YouTube’s momentum with weaker reception for Netflix’s original programming and offered little expectation of an immediate engagement recovery.

YouTube is also working to strengthen its relationships with leading creators. According to Khallouf, the platform is offering direct financing, larger payouts, and priority marketing in return for exclusivity, giving creators additional reasons to remain within YouTube’s expanding operation.

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At the same time, YouTube has been changing its functions for viewers. Its new "Shows" feature, released during the summer, imitates the type of episodic series format associated with Netflix and adds another point of competition between the two services.

Netflix’s second quarter earnings did not ease the concerns building on Wall Street. Sales missed estimates, while management offered cautious guidance for the third quarter, leaving investors without the reassurance they were seeking from the latest financial report.

Viewer activity also delivered a muted result. Hours watched on Netflix increased only 2% during the first half of the year, a figure that added to questions about engagement as YouTube expanded its share of television viewing.

The company’s recent performance issues therefore span several areas identified in the report. Netflix is dealing with a falling stock price, disappointing sales compared with estimates, cautious guidance, modest viewing growth, and stronger competition from YouTube for living room attention.

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Content creation presents another challenge. HSBC’s note said YouTube is tightening its hold on prominent creators through money, marketing, and exclusivity, while Khallouf pointed to declining reception for Netflix’s original content as a factor benefiting the rival platform.

Netflix has been adding more podcast shows to its service, but the source article expressed skepticism that those additions would repair its problems this year. That doubt arrives as investors continue to focus on original content, engagement, financial performance, and the platform’s ability to compete.

For shareholders, the contrast remains difficult to ignore. Netflix is down 23% since the beginning of the year while the S&P 500 is up 13%, and HSBC’s television viewing data suggest YouTube is claiming more attention as Netflix loses ground.

DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.