Netflix Stock: Can the Streaming Giant Keep Hits Coming?

Netflix (NFLX) has the distinction of being synonymous with movie and television streaming, being used colloquially as a verb when one watches a program online.

As the streaming industry has matured, Netflix has had to fend off challenges from giants like Amazon (AMZN), Disney (DIS), and AT&T (T), as well as smaller players like Roku (ROKU) and Crackle, among others.

Netflix has thus far survived these threats and has done so through its own stickiness, user experience, and heavy investment into programming, both original and already produced.

I am bullish on the stock, as I believe its subscriber base is likely to remain strong in the long term, given the company’s impressive ability to strike a chord with mainstream audiences. (See Analysts’ Top Stocks on TipRanks)

Growing Revenues, Subscribers

Despite increased competition around the world, and less pandemic-induced free time for subscribers, Netflix did post 16.3% year-over-year revenue growth in the third quarter of Fiscal Year 2021.

Its overall subscriber total reached 213.6 million, from 209 million in Q2. Subscribers in the Asia-Pacific region grew by 2.2 million (more on this below), as the company continues to expand internationally.

Due to the aforementioned increasing competition, the company will likely see growth rates slow down in the quarters to come. The platform is still a fixture in many households though, and is the dominant player in its space, with close to 50% of the global market share for streaming services.

As well, Netflix can always co-exist among other streaming services in an individual’s bundle of programming options.

Impressive Content Catalog

Netflix rose to prominence as a way to watch shows and movies over the Internet. The company took advantage of its early presence in the streaming industry to cut favorable deals and secure the streaming rights to many blockbusters and hit shows, fueling a market share that remains robust to this day.

As content producers became more wise to the value of the streaming rights of their shows, and developed streaming apps of their own, Netflix’s catalog slowly dipped in quality and quantity. Mega-popular titles such as The Office were being pulled onto other platforms (the rights for each particular piece of content does vary based on geographic location). 

By that time, however, Netflix had already generated enough revenue to invest in its own original programming, alongside strategic purchases of completed projects.

Stranger Things, 13 Reasons Why, Making of a Murderer, Tiger King, and most recently, Squid Game, are all titles that debuted on Netflix to smashing success. These titles became key parts of pop culture discourse during the time periods in which they aired.

The popularity of Netflix’s content catalog with audiences is what will keep revenue stable, if not growing, though annual revenues have grown each year since 2004. In recent years, the company has also gained the respect of critics and award shows, who once turned their noses up at content produced by the streaming platform.

It has had five titles nominated for Best Picture at the Oscars since 2019, and Netflix set a record in 2020 by having 160 Emmy nominations, the most ever by a network in a single year.

Netflix is now a titan of the entertainment industry, as its $301.4-billion market cap and place among FAANG stocks suggest.

Pushing for Asian Market Success

Now an established player in entertainment, Netflix has had to expand its reach in order to keep its growth momentum alive.

Just 6% of the company’s 2018 revenue came from the Asia-Pacific region, a number that grew to 9.5% in 2020.

Netflix has made heavy investments in recent years into the Japanese market, and on March 27, the company announced it would launch 40 new anime titles in 2021.

In October, Netflix announced a partnership with Tokyo Broadcasting in order to air various dramas and films as well.

Gaming Push

Perhaps the biggest wild card with Netflix will be whether or not the company is successful with its upcoming push into video games.

Netflix plans to release video games through its mobile app for subscribers to play on their phones. How much these games will tie in to current programming remains to be seen, as does the desire among Netflix users to play these games, but it’s something to keep an eye on going forward.

For now, this is an endeavor that is still in its early stages, though it’s clear that Netflix wants to carve out a stake in this growing industry.

Aside from conceding market share to its big entertainment rivals, this costly investment remains Netflix’s biggest risk going forward.

Wall Street’s Take

Netflix comes in as a Moderate Buy, according to TipRanks’ consensus rating. The stock has had 26 Buys, five Holds, and three Sells assigned to it over the past three months.

The average Netflix price target of $679.78 suggests 3.4% upside potential to current levels of trading.

Bottom Line

Netflix’s early mover advantage has at least somewhat eroded over the years, as competitors have made their pushes into the streaming space.

Its upcoming foray into video games is a big risk, and one to monitor closely. As well, at current levels, there isn’t much upside available over the next 12 months, at least according to Wall Street analysts.

However, the company has used its cash wisely, and seems able to come away with at least one massive hit a year that generates buzz few other networks are capable of.

Netflix has a lot going for it over the near and long term, which could make it a safe investment for those with an interest in playing the entertainment space.

Disclosure: At the time of publication, Daniel Goffenberg did not have a position in any of the securities mentioned in this article.

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