On October 20, Netflix disappointed investors with their Q3 earnings report. Originally estimated to net investors $2.14 per share, that expectation fell flat at only $1.74 per share. Adding salt to the wound, the company failed to increase its projected subscriber count by 1.5 million. With more competitors than ever in the video streaming business, investors have become concerned with the growth of streaming companies.
Currently, TV and movie streaming represents a $51.6 billion industry, with it projected to reach $85 billion by 2025. In the United States, streaming has become a staple for millions of Americans, and soon more people than ever will have access to this technology. Developing countries entering the digital age represent billions in profits for companies like Netflix and Disney. We are confident that Netflix will be able to compete in this market. However, with more companies launching streaming services, the competition has never been fiercer. Barring a binary event, we expect Netflix to remain a steady growth stock.
While companies like Netflix, Disney, and Amazon are trying to dominate the video streaming market, one company’s disruptive business model may flip the streaming business on its head. As of 2020, the mobile and console gaming business was valued at $159 billion, with current projections estimating that it will be $256 billion by 2025. Despite video streaming being all the rage from mainstream pundits, the gaming industry represents a much larger market share.
In 2017 Microsoft released Xbox Game Pass, a video game subscription service. Over the past several years, Microsoft has acquired over 23 first-party studios and has announced that they will release all their new games for free on Xbox Game Pass. In September 2020, Microsoft announced that it had acquired Zenimax Media, one of gaming’s largest conglomerates for $7.5 billion. In addition to this, other independent developers have partnered with Xbox to be added to Game Pass. With its strong value proposition and its accumulation of some of gaming’s finest studios, we feel that Microsoft will kickstart a new era of streaming for its shareholders.
Aside from console and PC gaming, which only make up half of the gaming market, Microsoft plans on integrating mobile gaming into its Game Pass service. As another free component to Game Pass, Microsoft recently launched Project X Cloud. This service will enable gamers to stream console games off of their mobile devices. The first to fully integrate this service is Android, and Microsoft is now working alongside Apple to get Project X Cloud on IOS devices. These innovations will make gaming more accessible than ever before.
While the days of video streaming companies enjoying parabolic growth may be over, the gaming revolution has just begun. Through Xbox Game Pass, Microsoft customers will have access to a vast library of games for only $15 a month. Furthermore, Game Pass will appeal to mobile gamers with Project X Cloud now available on Android and coming to IOS devices in 2021. In one fell swoop, it looks like Microsoft will have the potential to become the number one name in streaming.
