Remember Netflix? Stock Downgraded As YouTube Harvests Viewers

Disrupting the disruptor. The Curse of Cassandra strikes again.

Netflix stock has "a growing YouTube problem," a Wall Street analyst says. Alphabet's YouTube is taking increasing viewer share.

Netflix (NASDAQ:NFLX) shares slipped Tuesday after HSBC downgraded the streaming giant to Hold from Buy and slashed its price target 21%, warning that weakening engagement and intensifying competition from YouTube could make a near-term recovery harder to deliver. Analyst Mohammed Khallouf cut his target to $76 from $96, leaving only about 3% upside from current levels and putting renewed focus on whether Netflix can defend viewing time without materially increasing content costs.

Netflix stock fell more than 1% at Tuesday's open following the downgrade.

HSBC's central concern is engagement. Khallouf said near-term recovery in engagement looks unlikely, citing a declining reception for Netflix original content and the growing share of television viewing captured by YouTube.

That competitive pressure is increasingly visible in the numbers. YouTube reached a record 14.2% share of U.S. television viewing in July, while Netflix accounted for 7.8%, according to data cited by HSBC. Netflix's own engagement metrics also weakened: viewing hours for English-language programs appearing on its weekly Top 10 lists declined roughly 17% year over year across July and August.

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

Netflix has shifted more into YouTube's space with video podcasts, sports and other content.

"YouTube has been rapidly expanding its living room footprint, having captured a record 14.2% share of U.S. TV time this July," Khallouf said. "This momentum is increasingly coming at the direct expense of Netflix as its share fell to a multiyear low of 7.8%."

Netflix Stock Cut To Sell Rating

Meanwhile, rival Apple's (AAPL) Apple TV+ subscription service is riding high after dominating the Primetime Emmy Awards last week with 29 wins for critically acclaimed shows such as "Widow's Bay," "Pluribus" and "Slow Horses." Netflix scored 16 Emmy Awards.

On Friday, Wells Fargo analyst Steven Cahall lowered his rating on Netflix stock to underweight, or sell, from equal weight, or neutral. He also slashed his price target to 57 from 80.

"Engagement trends look worrying to us," Cahall said in a report. He also noted competition with YouTube.

Source: Investor's Business Daily

NB: You wait years and years for the obvious to happen. So long that you give up. Then it happens.

YouTube was the writing on the wall for all forms of TV. That much was clear more than a decade ago. So long ago that I forgot all that I wrote and thought about it. You just move on to other things, like transportation. This was in 2014.

In the meantime the trajectory takes its parabolic course. You just don't know where the peak is. We may have reached that peak, finally.

The power of YouTube was always there, the numbers have been compounding for years.

Personally, I never subscribed to Netflix, leaping directly to YouTube long ago. It may not appear comparable, but the jobs are the same: fill downtime with content that's easy to digest. Initially not good enough but good enough soon enough and more than good enough eventually.

The Curse of Cassandra strikes again.

But what about Apple?

The article notes that Apple keeps piling on the awards. What seems to be happening is that Apple saw the disruption and decided to fly well above it. The premise of Apple TV+ is that it's a provider of content of the highest, award-winning level only.

This may be eventually matched by YouTube but perhaps not. The production quality has no monetization equivalence in YouTube. The marginal dollar spent on quality has no return beyond a certain point. At least that's the calculus.

The best shows will just be on Apple TV. For everything else you can use YouTube.

This assumes that there are people who will seek out quality. That they are not ever going to just settle for filler and junk and ads and short-twitch triggers. The market bifurcation into "super premium" and "slop" follows the 80:20 rule.

Sounds familiar.