To The Moon

Netflix stock crumbled due to softening demand for streaming services. Could this be bad news for Apple TV+ and, ultimately, for the Cupertino company’s stock?

Netflix stock$Netflix(NFLX)$ investors have been licking their wounds this Thursday. After the streaming companydelivered disappointing Q1 subscriber metricson earnings day, shares tanked by 40% at one point during the trading session, shedding $60 billion in value along the way.

Apple stock$Apple(AAPL)$ was unable to dodge broad-based bearishness towards tech names. Shares of the Cupertino company also dipped on April 20, although by a much tamer 0.1%.

Could Netflix’s earnings developments have a substantial negative impact on Apple’s future financial results and its stock price? The Apple Maven looks at this question from a couple of different angles.

Streaming services in the penalty box

The bad news for Apple and all companies that run a video streaming service is that Netflix’s drop in subscriber count in Q1 is probably reflective, in part, of weakness across the industry.

The Los Gatos company listed several factors that have contributed to it losing 200,000 subscribers in Q1, the first “negative net addition” print in a decade. All of the key reasons offered could reasonably impact all streamers, not only Netflix.

Of course, there is the COVID-19 and post-pandemic effects. Following several months of confinement at home, which helped to propel demand for video streaming services, consumers now seem ready to step out of the house and spend money in offline experiences.

But the end of lockdowns does not tell the whole story. In fact, Netflix admitted that the post-COVID headwind narrative masked underlying issues that are now coming to light.

For instance, Netflix seems to believe that its addressable market of households with broadband connectivity has been slow at adopting on-demand entertainment. The uptake of connected TVs and high data costs were a couple of the challenges listed.

Also, competition has increased quite a bit in the past couple of years. Every major media company now seems to have at least one streaming service in the market. For example, Disney$Walt Disney(DIS)$ has Disney+, Hulu and ESPN+, while Paramount Global $Paramount Global(PARA)$ (PARA) offers Paramount+ and its more obscure service, Pluto TV, only to name a few newcomers.

Lastly, Netflix mentioned broad geopolitical and macroeconomic issues to justify loss of subscribers. Talks of an upcoming recessionhave surfaced, in part triggered by white-hot inflation, rising interest rates and the conflict in Eastern Europe.

Not all is bad news for Apple

All of the above, if accurate, could be a problem for Apple and its Apple TV+ streaming service. However, I do not believe that AAPL investors should worry too much.

For starters, Apple TV+ probably represents a very small chunk of the company’s revenues. Apple does not offer data on sales and profits per service, but I estimate Apple TV+ to account for 1% of total revenues, at most.

This is not to say that Apple TV+ is not an important component of the Cupertino company’s ecosystem. But any softness in demand for streaming services is much more likely to hurt a pure-play company like Netflix rather than a diversified tech giant like Apple.

But also, there is one important question: how much of Netflix’s recent woes can be attributed to weak demand for the company’s service vs. its competitors’? Netflix has been the undisputed market leader, and increased competition probably hurts it more than the incumbents.

Apple, in fact, may be taking share away from Netflix. Recently, TV+ made history by being the first streaming serviceto win the Academy Award for best picture, with CODA. Apple’s streaming offering is likely to be taken more seriously following the award, and its currentmarket shareof 5% (up quite a bit over the past two years, see below) could climb further.