After a big year for streaming in which a market leader lost its top spot because of more competition, 2023 will almost certainly be another important year. The rise in demand for ad-supported tiers and the release of live sports on multiple platforms have given the sector a new dimension and may give some companies an edge.
Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN) are down by 18% and 40%, respectively, over one year. The tech stocks are good buys on the dip, but one might a be a better place to invest your money now. Let’s look at the two companies.
Amazon
Amazon’s net sales over the holiday quarter exceeded even its most optimistic expectations, but the data indicate a business grappling with economic slowdowns throughout its divisions.
According to Amazon’s recently disclosed fourth-quarter (Q4) 2022 earnings, net sales were up 9% year over year — above the company’s previous projection of 2-8% year over year. Yet it was the company’s least lucrative Q4 ever, with earnings of $0.3 billion — a dramatic decrease from $14.3 billion the previous year.
In addition, the corporation reported a $2.7 billion net loss for the fiscal year, its first since 2014, breaking a trend of rising annual earnings and brisk expansion during the pandemic. Amazon’s stake in the electric vehicle firm Rivian resulted in a $12.7 billion pre-tax value loss in 2022.
The past year has shown that the streaming market is in a state of change, which makes it unstable. But Amazon’s many businesses have shown that it can handle market changes, and Amazon Web Services (AWS) will make up for e-commerce losses.
Netflix
After being the streaming king for years and almost single-handedly starting the business in 2007, Netflix’s reign was shaken up in 2022. In the first half of the year, the company said that it had lost more than one million members, which was the first time in over a decade that it had lost members.
But things are now looking good again for Netflix. The company added millions more subscribers in Q4 than Wall Street had predicted, propelling the streamer’s stock higher after the bell, despite a significant earnings miss.
This is the first quarter in which Netflix’s new ad-supported service is reflected in the company’s earnings. The business launched this lower-cost tier in November but has not specified how many new subscriptions are from people who chose this service.
The streamer stated last quarter that it was “extremely bullish” about its new advertising business. Netflix will no longer provide subscriber guidance in the future, while it will still reveal such numbers in future earnings reports. The rationale is that the company is shifting its focus away from membership growth and towards revenue as its major top-line objective.
In November 2021, Netflix Games, a separate library of mobile games that Netflix users can play, came out. The company spent the last year buying more game developers to grow its gaming business, and it has shown a lot of interest in cloud gaming. Netflix has also started working with some of the biggest studios in the business to make movies and TV shows based on popular games and mobile versions of popular franchises.
The new Netflix business is still in its early stages, and only time will tell how well it does. Still, the steps it has taken are good for its growth in the long run.
Bottom line
Amazon and Netflix had a rough year in 2022, and they have a lot of work to do in 2023. If you have to invest in one of these companies, Amazon is the better choice.
AWS’s 34% market share in a growing field like cloud computing makes the company more flexible and reliable than Netflix over time.
