Netflix came under heavy pressure on Tuesday as e-retailer Amazon signed a new content licensing agreement and increased its pressure on the internet streaming provider.
Shares in Netflix, which also provides home DVD delivery for customers, declined as much as 11 per cent before recouping some of its early losses. The company’s shares finished 6.4 per cent lower to $55.93 as analysts questioned its ability to fend off competitors.
Earlier in the morning, Amazon announced its new deal with Epix – a TV channel owned by Paramount Pictures, Metro-Goldwyn Mayer and Lionsgate – to show its content on the e-retailer’s “Prime” subscription service.
Epix programming includes movies such as The Hunger Games, the first of what is expected to be a highly profitable film series based on the novels aimed at young adults.
Netflix stock has fallen 19.3 per cent in the year to date, while Amazon shares have gained 43.2 per cent since the start of 2012.
“This news is another example of the competition that is mounting in the streaming business – specifically subsidised streaming – and one of the reasons that we believe Netflix’s business model is broken,” said George Askew, analyst at Stifel Nicolaus.
“We note that Amazon now has over 25,000 titles, perhaps 60 per cent the number of Netflix in the United States,” he added.
Amazon shares touched an intraday all-time high early on Tuesday but closed in negative territory, down 0.2 per cent to $247.88. The announcement of the new content deal came as analysts expect that the company will unveil its latest Kindle tablets this week.
Anthony DiClemente, analyst at Barclays, cautioned investors about the new release.
“While a lot of focus remains on the tablet devices themselves, we do not believe Amazon turns a profit on device sales, and we believe the true long-term opportunity is the higher margin content market, including digital books, movies, music, games, apps, and magazines,” he said.
Overall, US equities on the benchmark S&P 500 fell 0.1 per cent to 1,404.94 as trading began in the abbreviated four-day week with disappointing manufacturing data.
Closed for a public holiday on Monday, US stocks were looking to bounce back after giving up some of their summer rally last week, which culminated with no new firm signs of monetary stimulus from a key policy maker conference in Jackson Hole, Wyoming.
But a closely watched survey of manufacturing activity revealed a contraction for the third straight month in August and came in below market consensus.
Wall Street’s bullishness on equities ticked up slightly for the first time in six months according to a measure of optimism from Bank of America Merril Lynch. But analysts at the bank warned that it remained at the lowest level since 1985.
The Nasdaq Composite Index rallied 0.3 per cent to 3,048.02. Shares in Apple, the heaviest weighted stock on the Nasdaq, gained 0.5 per cent to $674.45 and finished at a record high.
Facebook shares fell to their lowest level since their May debut as analysts at Morgan Stanley and JPMorgan Chase cut their forecasts for the company’s performance.. Shares in the social networking site declined 1.8 per cent to $17.73 and have fallen more than 53 per cent since going public.
The Dow Jones Industrial Average fell 0.4 per cent to 13,035.94.
Shares in Valeant Pharmaceuticals jumped 14.7 per cent to $58.78 a day after it announced plans to acquire Medicis Pharmaceutical for $2.6bn. Medicis stock rose 38.3 per cent to $43.65, coming close to the $44 a share price Canadian-based Valeant said it would pay. Valeant has planned to use the acquisition to bolster its skincare business and increase its offerings to an ageing American population.
Ford, the automaker, added 0.8 per cent to $9.41 as it said US sales in August rose 13 per cent compared with a year ago. However, General Motors dropped 0.2 per cent to $21.31 even as the maker of the Chevrolet, Cadillac and Buick brands said its August sales had beaten market forecasts.
Telecom stocks were the best performing sector on the S&P 500 as investors shunned risk assets on Tuesday. Verizon Communications gained 1.8 per cent to $43.70 to put it among the top gaining telecom stocks.
Meanwhile, implied volatility on the benchmark index rose 2.9 per cent as Wall Street’s so-called “fear gauge”, the Vix, moved up to the 18 level.
Materials stocks were the worst off on the day, losing 1.5 per cent. Close behind were industrials, which declined 0.9 per cent, as Halliburton shed 1.9 per cent to $32.15. The oilfield services company said third-quarter revenues will fall short of the previous quarter due to a slowdown in its North America business.
Shares in Caterpillar, the earthmoving equipment company, declined 3.3 per cent to $82.66.