Netflix (NASDAQ:NFLX) Woes Hold a Lesson for Canadian Investors

A poor Q2 lends weight to the argument that there are better content streaming investments than Netflix, Inc. (NASDAQ:NFLX) — even on the TSX.

| More on:

Netflix (NASDAQ: NFLX) is in an interesting position at the moment, and it’s not one most people might want their business to be in. Down by around 15% after a big Q2 disappointment, the former FAANG favourite presents a cautionary tale to tech and media investors today.

A toothless FAANG that’s lost its bite

Interestingly, though, Netflix is still adamant that it won’t sell advertising. By counting out this particular source of revenue, Netflix is sticking to its guns — and hoping they won’t start firing blanks. Variety reported Wednesday that the popular streamer won’t start shoving commercials in your face, with the streamer stating that ad-supported content and pay-per-view are “fine business models that other firms do well,” but that Netflix is “about flat-fee unlimited viewing commercial-free.”

While it can’t be held up as a direct competitor to Netflix, there is a Canadian streaming equivalent: Crave. Under the Bell Media umbrella, an investor wanting to get a vaguely Netflix-like exposure might want to pick up shares in Bell company umbrella BCE (TSX: BCE)(NYSE: BCE). Covering world-class content and Emmy Award-winning programming, Crave became available to Internet users last November with availability on partner platforms such as Apple TV and Xbox One.

Perhaps the lessons Netflix can teach Canadians aren’t so much geared towards investors as they are to content programmers. The company is up against increasing competition (Disney, Prime Video, HBO Max) while seeing the removal of some of its best content — some of which belongs to its rival platforms. In other words, the company is being vulturized amid subscriber stagnation while debt grows and potentially hamstrings its ability to quickly invest in new directions.

The Bell umbrella is a better buy

However, herein lies the lesson for investors old and new: if you want exposure to a content streamer, check for debt and growth. There’s a homegrown equivalent right on the doorstep of the TSX that fit the bill: BCE. Having gained 25% over the past half-decade and paying a satisfying dividend yield of 5.28%, BCE has the healthier balance sheet, with its 133% debt well covered by cash flows. This is a very different story from Netflix’s poorly covered 180% debt.

You can also throw in that meaty BCE yield. While Netflix fans have pointed to its previously gravity-busting upside, in its absence, there’s no dividend to make up for poor performance. Throw in Netflix’s dwindling market share, and you have a toothless FAANG compared to a high-growth, dividend-paying domestic stock with a defensively diversified raft of media and telecoms operations. The lesson — and the choice — is clear.

BCE can also bolster its media streaming operations with what is sure to be a game-changing presence in the internet provision sector. Having recently beaten the competition to become the fastest ISP in the country, BCE could end up being the go-to 5G provider in the long-term, meaning that Bell could dig itself the biggest economic moat in the telecom industry — something that a company like Netflix is nowhere near achieving or even involved with.

The bottom line

The choice is clear for content streaming investors — BCE is the more solid investment for the long term. The fact that a Netflix investment has been all about creaming upside means that, of course, the two stocks are not exactly comparable, but still, it’s safe to say that the content streaming landscape is changing profoundly, with a new hierarchy emerging.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Victoria Hetherington has no position in any of the stocks mentioned. David Gardner owns shares of Amazon, Apple, Netflix, and Walt Disney. Tom Gardner owns shares of Netflix. The Motley Fool owns shares of Amazon, Apple, Microsoft, Netflix, and Walt Disney and has the following options: long January 2021 $60 calls on Walt Disney, short October 2019 $125 calls on Walt Disney, long January 2021 $85 calls on Microsoft, short January 2020 $155 calls on Apple, long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, and long January 2020 $150 calls on Apple. Walt Disney is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

man looks surprised at investment growth
Dividend Stocks

1 RRIF Withdrawal Could Shrink Your OAS More Than You Expect

A big RRIF withdrawal can trigger an OAS clawback, so building TFSA flexibility and dividend growth beforehand can help.

Read more »

a person watches stock market trades
Dividend Stocks

A High Yield Won’t Save You From a Dividend Cut: This 2.5% Payout Looks Safer

A huge dividend yield can be a trap if it’s high because the stock price is falling and a cut…

Read more »

dividend stocks are a good way to earn passive income
Dividend Stocks

$50,000 in a TFSA Could Pay You $227.16 a Month Without Selling a Share

A $50,000 TFSA can generate a +$200 monthly “paycheque” if you own a reliable monthly payer like CT REIT.

Read more »

Illustration of data, cloud computing and microchips
Dividend Stocks

The Best Discounted TSX Stocks to Snap Up Now

These two discounted TSX stocks are trading well below their 52-week highs even as they continue to show encouraging business…

Read more »

ETFs can contain investments such as stocks
Dividend Stocks

Don’t Fall for Telus’s Dividend: Buy This Monthly High-Yield ETF Instead

Telus (TSX:T) stock has a high yield, but a bad history of dividend cuts.

Read more »

A worker drinks out of a mug in an office.
Dividend Stocks

Down 24%: This Monthly Dividend Stock Is a Must-Buy

CAPREIT stock is down 24% over the last year, but its monthly distributions, resilient Canadian rental operations, and discounted valuation…

Read more »

arrows hit bullseye on target
Dividend Stocks

1 Canadian Dividend Champion up 182% for Lifetime Income

Great-West Lifeco stock has surged 182% over the last decade, and its latest earnings growth and expanding retirement business could…

Read more »

woman looks at iPhone
Dividend Stocks

Is Telus a Good Stock to Buy Now?

Telus stock has fallen sharply amid a dividend reset and weaker outlook, but its improving cash priorities and aggressive deleveraging…

Read more »