After a huge year in 2015, Amazon.com, Inc. (NASDAQ:AMZN) stock is off to a rough start in 2016.
In a little over two weeks, Amazon stock has dropped more than $120.00 a share. However, the company is not alone, as another top gainer last year—Netflix, Inc. (NASDAQ:NFLX) stock—is also having a hard time since entering 2016. So, is it over for these once-hot companies? Well, at least not for one of them.
AMZN Stock: Netflix Under Scrutiny
The company with a solid bullish case is Amazon, which has been known for its dominant position in the e-commerce business. But this time around, its on-demand video streaming service via “Amazon Prime” could give the company a solid boost.
Of course, when talking about on-demand video streaming, you cannot leave out Netflix, whose global subscriber base recently crossed the 75 million mark. However, investors have become more cautious about the company. After the most recent earnings release, Netflix’s stock price surged in after-hours trading, but lost the gains and even dropped to as low as $97.05 the following morning. Despite adding a solid 5.59 million streaming members, growth in the U.S. missed forecasts. (Source: “Q4 Letter to Shareholders,” Netflix, Inc., January 19, 2016.)
Investors are not happy.
As the king of the hill, Netflix is under a lot of scrutiny from investors. This is not uncommon, as market leaders, such as Apple Inc. (NASDAQ:AAPL), tend to be placed under the microscope. The idea is that the leader has to fight to keep its position or the challenger could take over. That’s where Amazon comes into play.
The e-commerce giant made the smart move of offering “Prime Video” as a free service to Amazon Prime members. Firstly, the video streaming service has made Amazon Prime membership more appealing. Moreover, Amazon Video became more popular due to the solid subscriber base for Amazon Prime. Although the company doesn’t release membership numbers, it was estimated that there are between 60 million and 80 million Prime members globally. (Source: “These Numbers Explain Why Amazon Wants to Give So Much Free Stuff to Prime Members,” Business Insider, October 20, 2016.)
Although video streaming is not AMZN stock’s core business, Amazon still put in plenty of effort to acquire solid content. Additionally, more recently, the company’s investment in original content started to bear fruit. At this year’s Golden Globes ceremony, Amazon’s original TV show Mozart in the Jungle picked up two awards for the best comedy or musical TV series and the best performance by an actor in a comedy or musical TV series.
How many awards did Netflix get? Despite having some solid nominations, Netflix came home empty-handed from this year’s Golden Globe awards. (Source: “At 2016 Golden Globes, Amazon Wins Best TV Comedy, But Netflix Goes Home Empty-Handed,” Forbes, January 10, 2016.)
Other than bolstering its own content library, Amazon is also trying out new strategies on its video streaming service. For example, the company recently launched the “Streaming Partners Program,” an over-the-top streaming subscription program. Partners at the initial launch included channels such as Showtime and Starz. To watch these channels, Amazon Prime members would have to pay an additional $8.99 for each channel per month. Note that the subscriptions are at a discount, as Showtime charges $10.99 for its unbundled streaming service. (Source: “Amazon Announces the Streaming Partners Program,” Amazon.com, Inc., December 8, 2015.)
The Streaming Partners Program is another smart move by Amazon. Video providers will have incentive to join the program because they can connect to millions of Amazon Prime members. At the same time, by having more premium content available, Amazon Prime memberships could also get a boost.
The Bottom Line on AMZN Stock
Recently, AMZN stock was rated as “Outperform” with an $800.00 price target at Credit Suisse. With its fourth-quarter earnings coming out next week, investors may want to take a serious look at Amazon.com, Inc. now.