Investing in Netflix: What to consider
Netflix (NFLX) has been steadily growing at an impressive rate over the past few years. The Netflix chart shows that the NFLX stock price has displayed a recurring pattern of reaching new records, then reverting to losses, then climbing again. Since 2013, the company has been showing gains year-over-year. The Netflix stock price is affected by two main factors: Subscription numbers and news related to original content. For example the company’s report for Q4 of 2016 has shown an increase of more than 7 million subscribers, sending NFLX stock price up by more than 8% on the day the report was released.
Follow Netflix (NASDAQ: NFLX) publications and financial reports in their Investor Relations Page.
Following years of focusing the domestic market in the US, Netflix has been making an effort to grow its international audience with great success. After maintaining gradual international growth, the company became available almost anywhere in the world in 2016. By distributing quality content, both original and acquired, while offering prices which rival those of cable and satellite TV providers, Netflix has been able to expand rapidly to the global market. The potential market for Netflix is still huge, and the company is constantly adding new content to its streaming service.
It is important to note the other players in the online streaming field, such as Hulu and Amazon Prime, which are offering similar services, and are also producing their own content. However, Netflix is still very much a leader in the online streaming space, and since all of the aforementioned platforms offer competitive prices, it is not unlikely that many users will decide to subscribe to more than one service, rather than alternating between them.
Who should include Netflix in their portfolios?
- Investors who wish to join the cord cutting trend: Over the past decade, content consumption has moved from watching TV to having it available on computers, smartphones and other smart devices. Netflix is available on all of these platforms, and is an industry leader when it comes to enabling users to access content across various devices.
- Tech investors: With a market cap of nearly $60 billion, a growing user base, and impressive year-over-year growth, investing in NFLX could be a good option for those who wish to invest in the tech sector long-term.
- Television and film aficionados: While piracy still poses a threat to the entertainment industry, stricter enforcement of illegal downloads around the world, coupled with Netflix’s affordable prices, make it a popular choice. While some analysts are constantly predicting the stock is nearing its peak price, those who follow the production of content closely might think otherwise, as Netflix is now more than a streaming service - it is one of the world’s leading production houses.
- Day traders: Around the time of Netflix’s earnings reports, and whenever a major content-related announcement is made, the stock could display short-term opportunities for day traders.
What drives Netflix’s stock price?
The interesting thing about Netflix stock is that NFLX price is driven by both quantifiable factors, such as subscribers and revenue, and amorphic factors relating to content creation and acquisition. The company officially releases its revenue and subscription numbers on a quarterly basis, and has been showing steady growth. Therefore, those who wish to invest in NFLX should monitor these reports, and predictions leading up to them closely.
For example, in early 2017, the company announced that it is producing a Hollywood-scale movie, which will be directed by Oscar winning director Martin Scorsese, with a cast which includes film legends Robert De Niro and Al Pacino. This serves as another milestone for the company, and some say it could earn it an Oscar. Following the announcement, NFLX stock closed more than 2% higher.
Another aspect of content on the platform is the partnerships Netflix secures. Alongside producing its own content, Netflix has partnerships in place with giants such as Disney, a partnership which includes all of the brands associated with it, such as Marvel and Star Wars. With an ever-growing selection of content on-demand, the name Netflix has become synonymous with television binge-watching and streaming content.
The tech angle
It is important to remember that Netflix’s service leans on massive infrastructure, which requires constant scaling and improvements. In order for it to seamlessly offer content on multiple platform, the company is always working on growing its server numbers, upgrading its video compression capabilities, and optimizing its streaming technology. Despite developing much of its technology in-house, innovations in these technology could enable it to offer higher-quality content at lower costs for the company.
With the availability of high-speed internet constantly growing, and reaching new places around the globe, Netflix has the potential of reaching additional new markets and expanding its subscription-base. If a technology which disrupts online video streaming should come along, it will present both a threat and an opportunity for the company.
History of Netflix
Netflix was founded in 1997 as a mail-order DVD rental and sale service. After ten years of focusing mainly on DVD rentals, the company introduced online streaming video in 2007. As high-speed internet became the norm, and cross platform content consumption became more widespread, the company gradually grew its user base and acquired more and more content by signing partnerships with content creators. However, the main change in the company’s revenue model came in 2013, with the introduction of its first-ever original series, House of Cards.
The award-winning, critically acclaimed political drama opened the floodgates for more content creation, and in 2016, Netflix produced 126 original series and movies - surpassing all other TV networks and cable channels in the US. The company’s first international expansion came in 2010, when its services became available in Canada. Since then, its international presence has grown exponentially, and as of 2016, Netflix is available in 190 countries worldwide.
Conclusion: Netflix is huge, and still growing
On the surface, it seems that Netflix has peaked, with a strong international presence and constant content production, growing from 600 hours of original content in 2016 to over 1,000 expected in 2017. However, with the company continuously generating revenue, expanding its user base, producing new television shows and movies, and adding to its infrastructure - it still has places to grow. While more than half of Netflix’s users are based in the US, with the company’s growing international presence, it could potentially increase its user-base several times over. Netflix has become the benchmark for online streaming, and is in the process of solidifying its status as the world’s premiere television content creator. With an ever-increasing subscription base, and growing offering of quality content, it seems that Netflix has nowhere to go but up. It is no doubt that the company will continue to spread out and try to secure subscribers in new markets, which could mean the NFLX stock still has a way to go.
*This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation.
*Past performance is not an indication of future results. All trading carries risk. Only risk capital you're prepared to lose.