During the lockdown/quarantine days of the pandemic, we all apparently rode our Peloton (PTON) bikes while binge-watching streaming videos. As soon as we finished that, we headed onto a Zoom Video (ZM) call, presumably before ordering food delivery and later having a Teladoc (TDOC) appointment
That may not have actually been your direct experience, but it's how the stock market performed. People bought so-called "stay-at-home" stocks because we all were, well, stuck at home. Of course, at some point we weren't stuck at home, and sentiment on those stocks changed.
The challenge for investors is sorting out the real narrative from the false one.
At-home-exercise bikes were never going to replace gyms once people could go out again, and the audience for a premium-priced product was limited when gym memberships can cost as little as $10 a month.
Telemedicine has a bright future, but it has limits and it may prove an area where the brand name does not matter.
Streaming video is different, however, and while Netflix (NFLX) and Walt Disney (DIS) stock are down roughly 40% and 55% respectively over the past 12 months, there are a lot of reasons shareholders need not be concerned.
Netflix Has a Correctible Problem
While Netflix grew steadily for a long time, no product has an endless upward trajectory. The company lost subscribers in its most recent quarter, but that comes after it added more than 36 million customers in 2020 and another 18 million in 2021. Even with its Q2 2022 drop of about a million subscribers, the company still has 220 million paying customers.
That's a huge number and it's not likely to get all that much bigger or all that much smaller over the next few years. The reality is that Netflix has left its growth phase and has moved into its fiscal responsibility phase.
Now, instead of producing $200 million movies and throwing them at the wall, the company has to be smarter about its content investments.
"So our content expense will continue to grow, but it's more moderated as we adjusted for the growth in our revenue," Chief Financial Officer Spence Neumann said during the company's second-quarter-earnings call.
"And we think we've gotten a lot smarter over the last decade or so being in the originals business as to where we can direct our spend for most impact, highest impact, and highest satisfaction for our members."
Nobody at Netflix wants to say "we're going to make fewer shows and focus on having hits," but Netflix has reached the retention stage of its business. It needs to have enough content its customers want to see coming up to keep people from quitting.
That may not be an easy transition, but it's one the company is likely to make, where it can be comfortably profitable around its current customer base.
Disney Has Nothing to Worry About
Disney is obviously much more than a streaming company, but Disney+ has been a massive driver for the company. Its growth was accelerated by the pandemic, but every family and any adults who like Marvel and Star Wars were always going to subscribe.
Fans of the company's huge franchises are simply not going to skip the biggest shows coming out of those universes.
Disney, unlike Netflix, does not have a too-much-content problem. It knows its customer base and understands that while "Falcon and the Winter Soldier" might draw a bigger audience than "Ms. Marvel," both drive audience to the service.
Disney may struggle with what's a theatrical release and what goes to streaming, but it has hit franchises that have stood the test of time. That's not going to change just because lockdowns have ended and we have other entertainment choices.