Industrial Highlight: Netflix and Tesla are the future?

Brian Messing, Managing Editor

Eric Parks, Section Editor

 

We are often told that once an industry is shaken up by a new and innovative company, that they are the future, and that traditional establishments are no longer relevant to today’s ever changing world. But is that always the case? No one can deny that Netflix (NASDAQ:NFLX) and Tesla (NASDAQ:TSLA) have changed the way that the media and automobile industries operate immensely. But are they really the companies that are the strongest moving forward?

Everyone loves Netflix. After all, why wouldn’t they? Netflix has changed the way that we watch TV by switching the medium of television from cable to the internet. Netflix has been so successful that other companies have copied their business formula, including Amazon (NASDAQ:AMZN) and Hulu.

But what comes first is perhaps not always the best. Netflix started providing online streaming when the entire concept was seen as a supplement to regular television. As a result, Netflix was able to strike deals with traditional media companies to license their content, for no additional cost to the media companies, and at a great profit for Netflix. But, the problem is traditional media conglomerates have caught on. Instead of collecting licensing fees from Netflix and Amazon, companies such as Disney (NYSE:DIS) have realized that they can make even more money by eliminating the “middle man,” and providing content directly to consumers using their own streaming services.

With their acquisitions of Marvel, Lucasfilm (Star Wars), and Fox, in addition to their own vast content libraries, Disney has amassed a lot of content that they are going to keep exclusively on their new streaming service, Disney+. And for only $6.99 per month, Disney+ will be much more affordable than Netflix. But, Disney is not the only company trying to get into direct to consumer video. AT&T (NYSE:T), is rumored to be launching a new streaming service later this year, as well as  NBC Universal, owned by Comcast (NASDAQ:CMCSA) in 2020. CBS (NYSE: CBS) has had CBS All Access for several years now, and Viacom (NASDAQ:VIA,VIAB) recently purchased PlutoTV.

With all this competition, will Netflix survive? Unlike all of the previously mentioned companies, Netflix does not own much of its own content. They are trying to develop their own originals, and have many good shows, but that doesn’t change the fact that 72% of the hours that customers spend on Netflix is spent watching licensed content. Netflix’s recent deal with AT&T to renew its license to stream “Friends,” for $100 million for one year, is proof that their business model will get expensive if people will not subscribe for their original content alone.

Tesla, on the other hand, has been facing issues for a while now. After the stock reached an all-time high of 383.45 points on June 23, 2017, it has been highly volatile. There are many reasons for investors to be excited for Tesla. Frequently labeled as a tech stock, Tesla is investing much of its capital on perfecting its autopilot software. Many investors are hoping that Tesla’s Model 3, their sedan that is targeted towards the middle class, will become one of the best-selling cars of all time. If this happens, Tesla will substantially increase its market share, and if their autopilot is as safe as the company intends it to be, the company will undoubtedly revolutionize the auto industry.

While these reasons have caused many to invest heavily in the electric auto manufacturer, others consider Tesla’s stock to be a bubble that will burst at any moment. The company has hundreds of thousands of Model 3 orders on hold, and they have never lived up to production expectations. Additionally, the company’s finances are fragile, and investors may not continue to be forgiving of production shortcomings if Tesla does not consistently turn a profit in the near future. While Tesla was profitable for quarters three and four of 2018, their revenue was down to $4.5 billion from $7 billion in quarter one of 2019, and the company posted a net loss of $700 million.

At this time, Brian Messing does not hold a position in Netflix (NASDAQ:NFLX), Tesla (NASDAQ:TSLA), or Amazon (NASDAQ:AMZN), but does hold a position in The Walt Disney Co. (NYSE:DIS), AT&T (NYSE:T), Comcast (NASDAQ:CMCSA), CBS (NYSE:CBS), and Viacom (NYSE:VIAB). Eric Parks does not hold a position in any of the mentioned securities.

 

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