- Business Insider recently spoke with CFRA media and entertainment analyst Tuna Amobi about what 2018 holds for Netflix, Amazon, and Disney.
- “This year is going to be an inflection for Netflix,” he said when asked how the company would perform in 2018.
- Amobi thinks that one of the biggest threats to Netflix in 2018 is other media companies, like Disney, taking their content direct-to-consumer.
- He thinks Amazon will make an unconventional acquisition in 2018.
Following is a transcript of the interview as aired on “The Bottom Line.” It has been edited for clarity.
Sara Silverstein: When you look at tech and media stocks overall, do you think that they’re overvalued?
Amobi: I do think a lot of the stocks are trading near all-time highs, partly because of the consolidation that we’ve seen across the landscape. So there is embedded takeover premium in some of these names. Nonetheless, we still believe that the fundamentals and the way that the landscape has been unfolding provides attractive opportunities for some of the leading players.
Silverstein:So, there’s still upside for 2018?
Amobi: That’s correct. That’s why we have a strong buy recommendation, for example, on the shares of Disney. We’re recommending Amazon and Netflix as buys. And also, Comcast; we have a buy recommendation. We’re seeing companies starting to reap the benefits of scale in a vertical integration, horizontal integration, all of these things are coming to play and investors are looking at the year ahead and they believe there’s probably more consolidation to come. There’s probably going to be benefits from rolling back of some of the regulations under the Trump administration. So there’s a potential catalyst that we see could take the group higher in this 2018.
Silverstein:And what does 2018 look like for Netflix?
Amobi: Netflix, I think, has really reached an inflection. This year is going to be an inflection for Netflix where they’re going to, for the first time in their history, generate global profitability. That’s a very important milestone for Netflix. The international business is going to gain even more traction and a lot has been said about the potential saturation in the domestic market for Netflix. Their results in the past several quarters show that there could be additional upside even within a domestic market. So Netflix has become the preeminent disruptor. And I think they’re starting to reap the benefits of the content investments that they have made over the years and they will take those investments even higher this year in 2018.
Silverstein:And what’s the biggest threat to Netflix? What could derail their success?
Amobi: One of the biggest threats that I see is the idea of a lot of media companies taking their content direct-to-consumer. We heard Disney make that groundbreaking announcement that they’re going to pull their content from Netflix and go direct-to-consumer with their Disney and ESPN brands. So as you think about the entertainment landscape, a lot of media companies are watching and they’re kind of stepping out of that paradigm where Netflix, as much as they’re getting a lot of money from Netflix for their content, but they’re starting to view Netflix not necessarily as a friend but potentially as a direct competitor. So I think you’re going to see a new paradigm where Netflix is going to be competing not just against the traditional media companies but also some of the Internet and technology companies that are getting ready and starting to spend significant amounts in content investments.
Silverstein:And is Facebook Watch a real competitor to Netflix?
Amobi:I do believe Facebook Watch is in the early goings. I wouldn’t necessarily characterise them as the head-to-head competitor now. But clearly, Facebook is very serious about their content and all of the investments that they have made. And we expect them to ratchet that up this year. Ultimately, I think you’re going to have a potential shakeout where you’ve got the haves and the have-nots, right? The haves are going to be the large media and technology companies, including Netflix. And then, the have-nots are going to be those that are going to find it tough to keep up with the acceleration in content and investments and creativity and innovation that we’re all seeing in this new world order.
Silverstein:Who’s the biggest competitor for Netflix? Who do they have to look out for? Is it Hulu, Amazon, Disney?
Amobi:All of the above. All of the names you threw out are ratcheting up their level of investments. Now, Netflix, to be sure, is still far and away the biggest spender in terms of content. But all these names, whether it’s Hulu, Amazon, Disney, they’re all stepping up their game. So I think Netflix has a very good reason to look over its shoulder in this year 2018 and beyond.
Silverstein:And what about Amazon? What does 2018 look like for Amazon?
Amobi:Amazon, I think, the future looks incredibly bright for them. We expect them to spend north of $US4 billion or more this year in content, almost double what they have spent thus far. So when you think about Amazon, they have got this core business of e-commerce, where they’re the de facto leader at gaining market share not just in the US and internationally. Then you’ve got all these other ancillary businesses, which are driving huge subscriber growth in their Prime membership; so think about video, hardware devices, all the Echo & Alexa devices.
So Amazon, I think, they really have their A game right now, where they have taken a step back and started to look critically at areas where they’re going to be investing even more aggressively. They’re doing that already in international markets, such as India and China. So I think the playbook is somewhat similar to Netflix, where they’re doing all the things – blocking and tackling within the domestic market – and also aggressively expanding internationally, where you have markets like India having huge upside and barely even tapped by any of these companies. So that’s where you’re seeing international becoming more and more of a major catalyst, which I don’t think is properly reflected in the share prices.
Silverstein:And is there anything that could mess it up for Bezos, or could completely derail Amazon?
Amobi:Well with Amazon, you never know. As you know, investors always scratch their heads, what’s going to be that next quarter or the other quarter where, you know, spending is going to get out of hand and potentially push the company into a loss situation. I think, for them, the challenge, to your question, is to demonstrate a consistent track record of profitability in a quarter-in quarter-out, year-in year-out. They haven’t done that yet. I think they will; they’re well-positioned to do that.
Silverstein:When do you think they will do that?
Amobi:I think it’s probably a few years out but we’re very excited about this Amazon Web Services unit; the cloud infrastructure business which by far and away is the fastest growing division within Amazon. We think that they could be well-positioned to spin that out as a separate business, which could unlock further value. So I think if you’re Amazon, you’re in a very good position; you’re growing your Prime subscriber base at a very fast clip around the world; you’re investing aggressively in content and hardware devices; your fulfillment centres are getting a lot of scale benefits. And then the Whole Foods acquisition; let’s not forget about that. We think that acquisition is going to provide additional touch points for the company to grow its other ancillary businesses.
Silverstein:It seems like that there’s no business that’s off-limits. What’s the next business, do you think, Amazon might get into?
Amobi:We think, according to our predictions for this year, that Amazon will make an unconventional acquisition in 2018. You look across the landscape, there’s a variety of areas where, I think, the company has, what I might call, the core infrastructure to enable them; whether it’s live ticketing, for example, or even pharmaceuticals distributorship, apparel, other segments or categories within retail where the company could potentially take it to the next level and invest aggressively and disrupt the traditional players, which is what they do best.
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