Could Netflix Stock Jump to $250?
Although shares of Netflix, Inc. (NASDAQ:NFLX) were gyrating through the summer, I wouldn’t panic just yet. Netflix stock still gained 130.6% during 2015, a sign that investors aren’t buying the media narrative against NFLX stock.
If you read the mainstream press, you may get the sense that rivals are closing in around Netflix stock. The bears are hungry for it, but there’s no need for alarm until we see an actual product that can compete with Netflix.
Some say the Netflix alternatives to watch are Hulu LLC and the Prime streaming service from Amazon.com, Inc. We may see volatility for Netflix stock in the short-term, as investors start to price in industry changes, but the stock will rebalance. (Source: “Hulu Steps Up Its Fight Against Netflix,” The Wall Street Journal, June 16, 2015.)
There simply isn’t enough to concern me yet. Sure, Netflix was outbid on a license or two and other firms are finally realizing the power of online streaming. The field will get more saturated around Netflix, but it’ll take more than that to stifle the company.
NFLX Stock Under a Feeble Attack
I think Netflix is poised to continue its growth trajectory and NFLX will bear the fruit of its labors. Hulu just launched its advertisement-free service, something Netflix has been offering for quite some time to its 43 million subscribers in the U.S. alone. That comparison doesn’t look too scary to me.
If markets were fully rational, then Netflix stock would be untroubled by Amazon Prime and Hulu’s entries into the streaming market. The only significant win for Hulu was picking up the rights to Empire, a hit TV show that would have sweetened Netflix, but its absence from the company’s catalog won’t break it.
At the time, Netflix was playing hardball with 21st Century Fox, the studio that owned the rights to Empire. Fox had released the entire first season through its on-demand cable service and Netflix thought that lowered the value of the show’s contracts.
As an aside, anyone holding Netflix stock shares should appreciate the firm’s willingness to play hardball. Amazon, Apple, and the movie studios won’t flinch before putting the hammer to them, so it’s good to see the crew at Netflix isn’t made of glass.
But back to the Empire contract. Hulu swept in and took the contract under the terms Fox offered, which should hardly be surprising when you consider that Fox owns a portion of Hulu. Make no mistake, Hulu is taking a swing at Netflix, but I just don’t think it’ll connect.
Netflix has a big thing going for it that investors often seriously ignore: experience. No company, I don’t care if it’s Netflix, Hulu, or Amazon, can afford to keep the rights to all shows and films; they have to choose what to spend their money on and they must do so wisely.
A lot of the funds raised from Netflix shares go into research and development. Most investors with NFLX stock think that refers to the original content strategy. It does, but there’s a lesser-known element, too: Netflix invests heavily into data analytics that help predict which shows and films subscribers are most likely to enjoy next. That Netflix algorithm uses deep learning strategies to constantly improve its understanding of user preferences by learning our patterns. The sheer volume of traffic on Netflix, plus the length of time it’s been operating, means it can better cater to customers’ tastes than Hulu or Amazon.
NFLX Stock Could Surge…Again
The endgame I see for NFLX stock is bright. We’ve seen stellar growth in Netflix stock since the company’s inception and IPO, save for the hiccup in 2011. At that time, investors were outraged that Netflix wanted to separate its home delivery of movies and the online streaming division.
NFLX stock took a nosedive and the company backpedalled from its plan. Just a few years later, the Netflix stock is up more than 350%. In the next few months, we could see some investors start to question Netflix again, but rest assured, NFLX stock is fairly insulated from harm.