There is no other S&P 500 company that achieved more gains than Netflix, Inc. (NASDAQ:NFLX) in 2015. But things seem to have changed in 2016, with NFLX stock deep in the red. The question now is this: will investors warm up to the company again?
The answer is yes and here’s why.
For companies in the Internet industry, user growth is crucial in the eyes of investors. And that’s indeed the case for Netflix. Because Netflix’s on-demand video streaming service is not free, more users translate to more revenue for the company.
In the most recent quarter, Netflix added a record 5.59 million new subscribers. While growth in the U.S. has slowed to just 1.56 million additions, international additions are still going strong at 4.04 million. By January 1, Netflix had more than 75 million members worldwide. (Source: “Q4 15 Letter to Shareholders,” Netflix, Inc., January 19, 2015.)
What could really cheer investors up is Netflix’s guidance. The company is forecasting 6.1 million net additions for the first quarter of 2016, 25% more compared to the 4.88 million added in the same period last year.
More High-Quality Content
Since competition is ramping up in the on-demand video streaming business, companies have to up their game. And the key to winning viewers is simple—more high-quality content.
Netflix already has a solid library of original content. Shows like House of Cards, Narcos, and Marvel’s Daredevil are Netflix originals with huge followings.
Going forward, the company has a lot more to offer to its viewers. In 2016, Netflix plans to launch more than 600 hours of original programming, up from 450 hours in 2015. There will be new seasons of around 30 original series, eight or nine feature films, and 35 new seasons of original series for kids.
Material Global Profits
Note that there is a whole lot more going on at Netflix than before. The company just launched its service in 130 additional countries, expanding its addressable market by 190 million broadband homes.
No doubt, a larger market is good for business. But what investors really care about is whether Netflix can monetize on the expansion, and whether it would improve NFLX stock’s bottom line.
With so many new markets added, the company’s strategy is to “listen, learn, and improve rapidly, adding more content, additional languages and a better Netflix experience over time.” While we probably won’t see huge earnings right off the bat, the company continues to expect “material global profits beginning in 2017.”
The Bottom Line on NFLX Stock
With a solid track record and huge growth potential, Netflix stock should definitely be on your watch list. Moreover, if you thought that NFLX stock was a bit expensive last year, this pullback might be a good opportunity.