As the economy continues to reopen and the days of at-home stock dominance are left behind (for now), we ask if Netflix stock is still a good investment?
It’s one of the most talked-about companies on the planet, it’s become a verb, and it brought us ‘Tiger King’ amid a dreadful pandemic; but is that all Netflix (NASDAQ: NFLX) has to offer? Before the economy recently reopened, there was a time when at-home stocks looked likely to rule the stock market for years to come; the Netflix’s, Activision Blizzards (NASDAQ: ATVI), Pelotons (NASDAQ: PTON), and Zooms (NASDAQ: ZM).
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However, issues were brought up at Netflix’s Q1 earnings call way back in April that suggested this could be as good as it gets for the streaming giant. With that in mind, is Netflix stock a buy right now?
The bull case for Netflix
1. Business is boomin’
In case you haven’t noticed, everyone is streaming right now. Disney+ (NYSE: DIS) has more than 50 million subscribers, brand-agnostic Roku (NASDAQ: ROKU) is riding the wave, Apple (NASDAQ: AAPL) has hinted at success with Apple TV+. Netflix beats out all the rest with 183 million subscribers, having added 16 million more in Q1 alone — double Wall Street estimates. Netflix also revealed revenue growth to $5.77 billion, proving that its subscription model is still cashing checks month after month. Though the U.S. market is becoming saturated, there is still a whole wide world out there with 4.6 billion internet users, and with the video-streaming market expected to grow at a CAGR of 18.3% between 2019 and 2026, there is a lot of business still to be had.
2. First mover advantage
Never discount the importance of being the first on the scene. It’s worked for Coca-Cola (NYSE: KO), eBay (NASDAQ: EBAY), Kellogg (NYSE: K), and of course, Netflix. By becoming the first name in streaming Netflix achieved immediate brand-recognition, learned the ins and outs of the industry without the threat of competition, and made itself a necessity in people’s lives even when competition did arrive. All this has helped Netflix’s stock grow roughly 35,000% (when taking stock splits into account) since it went public in 2002, and will help it remain dominant. Even Disney+, Netflix’s biggest threat, does not appear to be stealing market share, though it’s early days yet.
3. Revenue growth opportunities
Netflix actually has a budding podcast business — which is a budding industry in itself. Although Spotify (NASDAQ: SPOT) is gaining a stranglehold over the podcast industry, that has been down to a lack of competition rather than an economic moat on its part. Netflix could easily pour more efforts into podcasts to compete here, especially with some analysts putting the industry’s value at nearly $1 billion by next year, double what it was in 2018. Elsewhere, we have seen how much money companies like Roku make from advertising — $742 million in 2019 — and it is possible that Netflix could go down this route in the future as it continues to become an indispensable commodity in our lives.
The bear case for Netflix
1. Growing competition
Ok, so this might contradict my previous point, but there is no ignoring the increasing amounts of competitors in the streaming space. While Disney appears to be the biggest threat right now, Apple, Amazon, Comcast (NYSE: CMSCA), and more could easily up their game in the future and begin to truly chip away at Netflix’s market share. I personally don’t see this happening any time soon, but the possibilities are always there.
2. “As good as it gets”
CEO Reed Hastings touched on this at Netflix’s most recent earnings call in that the company could see a slump once this pandemic ends, with many analysts suggesting that this is as good as it gets. Hastings admitted that he couldn’t give an accurate estimate on how many subscribers Netflix would add in 2020 because it could wholly depend on the severity of the pandemic. It could be a risk, especially if consumers decide that Netflix is a commodity that they can no longer afford in an economic downturn.
So, should I buy Netflix stock?
I am a shareholder in Netflix, Disney, and Apple and believe that it is well worth investing in as the dominant force in streaming. Though the company does hold a sizable $14 billion debt, it recently tapped nearly $1 billion in a new debt offering, showing it has easy access to capital. Netflix still has a lot of growth ahead of it, and with its ever-growing bank of award-winning content that could see it match Disney’s own portfolio in years to come.
As of April 2020, Netflix has roughly 183 million subscribers.
Netflix does not currently pay a dividend.
Netflix’s original 2002 IPO price was $15 per share.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.