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Will Netflix’s share price beat streaming rivals in 2022?

Netflix’s [NFLX] share price had a solid 2021, even if it didn’t outperform the wider market. Up over 18% during the course of the year, the stock outperformed its main rivals in the streaming space with Amazon [AMZN] managing a muted 2.8% gain and Disney [DIS] tanking 12%. However, Netflix’s share price was well off the pace of the benchmark S&P 500’s 27% surge.

Could 2022 be different? Writing on The Street, Bruno Reis at DM Martin Research suggests that historically speaking January has been a good month for Netflix’s share price.

“Since the company's IPO, NFLX has posted an average return of 18% for the month of January.”

Although, this should be tempered with the fact that historical price movements are no guarantee of future performance. Not to mention that since the start of the year Netflix’s share price has plummeted over 10%, closing Friday at $541.06.

So, it’s fair to say that Netflix’s share price hasn’t gotten off to the best start in 2022. Although this performance was probably more due to market jitters caused by hawkish noises from the Federal Reserve and the prospect of increasing inflation.

 

 

 

Netflix’s share price performance depends on subscriber numbers

For Netflix’s share price to outperform in 2022, it will come down to subscriber growth figures and content.

Netflix, Disney and other streaming platforms all saw growth in subscriber numbers slowdown in 2021.

In the third quarter of 2021, Netflix added 4.4m subscribers. That gave the streamer a total of 213.56m subscribers and while that’s up 9.4% year-on-year, it’s well off the pace of the 23.3% growth seen in Q3 2020. The second quarter of 2021 also saw a single digit growth in subscribers, this time 8.4%. That’s a sharp decline from the double digit growth rates the streamer had enjoyed during the previous three quarters.

4.4m Q3 subscribers

The figure represents 9.4% year-on-year growth, down from thew 23.3% growth it saw in Q3 2020

 

Netflix blamed this on a ‘lighter-than-normal content slate’ for the first two quarters of the year, owing to disruption caused by the pandemic in 2020.

It was a similar story at Disney Plus where the House of Mouse’s streaming service managed to add just 2.1m subscribers in its most recent quarter. That was down from the 12m new subscribers in the previous quarter and wide of the 10m  Wall Street had expected.

An issue for Disney was a lack of fresh content. If you weren’t a fan of Marvel, Star Wars or Pixar then the streaming platform didn’t have much to offer. Netflix, on the other hand, had buzzy international hits like Squid Game, The Crown and Lupin.

 

Streamers spend billions on content

To fix this Netflix is planning to spend a gobsmacking $17bn on new content this year - up 25% from last year, according to the FT. That’s a heavy investment, reflecting just how much investment is needed to stay ahead in the streaming business.

Disney+ is also spending big to help bolster the numbers - even if some of it does rely on the aforementioned franchises. For the 2022 financial year, Disney is spending $33bn on content, an increase of $8bn from 2021’s $25bn spend. This includes pricey sports rights for ESPN and ESPN Plus.

$17billion

Netflix's content budget for 2022 - up 25% since last year

 

Unlike Netflix, Disney isn’t solely reliant on its streaming revenue. The pandemic may have forced Disney to shut its amusement parks, but this year they’re back open with television adverts already inviting punters back to the magic kingdom. Likewise the cinemas that had first dibs on its blockbuster films are back open.

Another rival to Netflix’s dominance with deep pockets is Amazon. Over the holidays Amazon launched fantasy epic Wheel of Time which came with an eye-watering $80m price tag. This year it will launch its Lord of the Rings series which comes with an even bigger $465m cost.

 

Who should investors back?

Wall Street is expecting Netflix, Disney and Amazon to have a better time than last year.

JP Morgan’s Doug Ambuth trimmed his price target on Netflix’s share price last week to a still bullish $725 target on the stock, down from a previous $750, to go with his Overweight rating. The chop came as Ambuth revised subscriber estimators for the fourth quarter, with net additions of 6.25m, down from 8.8m.

Another bull is Key Blanc’s Justin Patterson who upped his price target on Netflix from $690 to $725 back in November.

Among the analysts tracking Netflix’s share price on Yahoo Finance, the stock has an average $673.36 target - a 24.%% upside on Friday’s close of $541.06.

Wells Fargo analyst Steven Cahall has named Disney as his ‘favourite large cap idea for 2022’, pinning a $196 price target on the Magic Kingdon’s stock - a 25.5% upside on Friday’s close.

Analysts have also made some big calls on Amazon for 2022 with the average analyst price target coming in at $4,104.88, suggesting a 26.% upside.

Disclaimer Past performance is not a reliable indicator of future results.

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