Amazon, Streaming Video and the Future

Nate is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

OK, so one of my least favorite companies, Amazon (NASDAQ: AMZN), announced recently that it has reached an exclusive deal with CBS to be the exclusive streaming video provider for the new series "Under the Dome." Good for Amazon, I guess. But I'm still not impressed.

There's a LOT happening in the streaming space right now and I get that Amazon is trying to stay in front of it. But news like this shouldn't be enough to move Amazon off the warning lists. So the company's Amazon Prime will have an exclusive on 13 episodes of a mini-series based on a Stephen King book. Again, so what?

Streaming is going to be huge. It'll be the final death of video rental stores and it may end up being the death of most movie theater chains. But it's not there yet and there are still obstacles to overcome before it does happen. Still, my job in writing these columns is to peer into the future (darkly) and see what's coming so that you can think about it and make your investment choices wisely. So here's some thoughts on the streaming revolution.

Amazon

Look, I'm already on record as thinking that Amazon is way overpriced. I get it, it's cool, it's sexy and so forth. But for heaven's sake, what has it done to justify its share value and market cap? It's practically 20 years into its existence! Why should it have a P/E in the thousands?

Amazon is one of the stocks I called out recently as not being a tech stock for adult and rational investors. I think the business model that it's founded upon is very vulnerable to challenge from a well-financed late entrant. Perhaps someone like Rakuten can make that challenge happen.

No dividend, no long-term history of profitability and an easy-to-enter market makes Amazon vulnerable, no matter how they try to pump up the share price with headline-grabbing announcements.

Netflix (NASDAQ: NFLX)

Want to see a big spike in share value? Take a look at Netflix over the last month. No guarantees that it'll happen again, mind you. But it's still worth a look.

Netflix started out a long time ago mailing discs to people. Now they still mail discs but the streaming world is taking them new places. God knows my kids love it. Still, the company faces significant content challenges and will have to be aggressive in partnering with a series of content providers.

Don't be fooled by the sudden spike -- that's irrational exuberance speaking. No one knows where it's going to end up a year from now. Netflix is for risky money and kids that like watching Japanese cartoons. The P/E isn't as extreme as Amazon's was, but it still shows people are buying on expectation and not on performance.

Apple (NASDAQ: AAPL)

Apple could be formidable in streaming if they truly committed to it. The firm has the technology to bring a lot of content to the world in a hurry and already has the content ready to go with the iTunes store. The firm is already committing to streaming music in 2013 and movies can't be too far away.

The firm's stock has famously tanked over the last little while and I see the reason for it. Toss in pressures from large investors and something's going to happen. If you believe in Apple and the concept of streaming movies and television shows then Apple might still be a good pickup. Heck, might be anyway.

Google (NASDAQ: GOOG)

Again, Google's another firm well-placed to move into streaming hugely. The firm has its Google TV out there already and just needs to make sure that the content providers keep on providing to make them truly a leader in the industry.

Honestly, I don't see why Google hasn't done this already. The firm isn't known for waiting around and has been in an acquisitional mood. Still, maybe the execs over there have been busy. Still, the stock continues to go up and so do the expectations that Google can do anything. That's not true, obviously, but a reasonable P/E of 24.10 and a year-long growth in share value, from $612.20 to $782.86 shows me that it's not overpriced like some of the others. It should just split a few times and mature into its role.

There's a lot that can happen in streaming, and several of the players are either private, like Blockbuster or Hulu, or content providers trying to figure out how to get into the action. That last is what will put streamers like Netflix and Amazon on hold. Either could still do well, but I'd bet on some sort of long-term partnership that locks others out of content. Similar to what Amazon is trying to do with the "Under the Dome" thing, but wider. But there's no guarantee that Amazon is going to be the one who pulls it off first, or even best. Invest your dollars appropriately.

Good luck!

Follow Nate on Twitter: @natewooley

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Nate Wooley has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, Google, and Netflix. The Motley Fool owns shares of Amazon.com, Apple, Google, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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