This Could Send Netflix Stock Soaring
Netflix Inc. (NASDAQ:NFLX) stock has been hammered over the last month, as concerns mount that the company may be facing ever-growing competition from rivals.
The Netflix stock price has done quite well this year, as shares of the video- streaming giant shot up by more than 110% year-to-date.
But all is not rosy as the past two months have shown. The Netflix stock price nosedived in August, losing about 20% of its overall value.
It’s understandable then that many investors and analysts are growing more cautious, and questioning whether or not Netflix stock will continue this downward trend or whether it will rebound.
The big question on every smart investor’s mind of course is: How can I make a profit on this?
Here’s Why I’m Bullish on Netflix Stock
The latest downward pressure on the Netflix stock price raises issues of whether or not now is the right time to buy, before shares quickly rally and go even higher than they were before, or if this is only one step on a long ladder down to financial ruin for the company.
If things get worse for Netflix, you certainly don’t want to be the one holding a large chunk of its stock.
But before proceeding with my analysis, let’s backtrack and see if we can figure out how this mess started.
The Netflix stock price has been very volatile lately, but its recent negative performance needs to be contextualized. Much of the latest bad news has something to do with wider global economic hiccups, which are obviously beyond Netflix’s control.
Stock markets the world over are facing tremendous downward pressure as a result of the ongoing China stock market crash, as well as possible geopolitical conflicts in the Middle East, which together threaten a wider economic collapse. For instance, the NASDAQ Composite Index has dropped by almost seven percent in the past financial quarter.
People want security and predictability when times are tough. It’s understandable then that investors, worried as they are about wider economic volatility and possible conflicts and disruptions, are now more hesitant to put their money into a growing equity such as Netflix stock.
Despite its solid business model and stellar overall growth, investors thinking about putting their money into NFLX are still aware that it’s a relatively new company, in a new industry.
And that’s not all.
Competition has emerged on the horizon, as Netflix faces new rivals such as Apple Inc. (NASDAQ:AAPL) which is planning to push its own video- streaming platform. (Source: MacWorld, last accessed September 23, 2015.) It might seem far-fetched that Apple, a maker of smartphones, laptops, and tablets, could hope to match Netflix in the online video-streaming arena. But consider that Apple has over $200 billion in cash reserves to throw at this or any other project, as well as a brand name far more powerful than that of Netflix. (Source: Bloomberg, last accessed September 23, 2015.)
Another rival to consider is Amazon.com, Inc. (NASDAQ:AMZN), the undisputed number one e-commerce platform in the world. The company recently announced that subscribers of Amazon Prime will now be able to instantly download videos to their mobile devices. (Source: Amazon, last accessed September 23, 2015.) How does this threaten the Netflix stock? Consider that with this new feature, Prime subscribers will be able to save streaming videos and watch them in areas without an internet connection or with poor Wi-Fi. Netflix neither has that, nor is announcing any such downloading features at the moment.
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Let’s talk about public perception. Netflix has failed to perform as well as HBO (a Time Warner company), and Amazon at the Emmy Awards. HBO swept the awards, taking in 34 awards, and Amazon clinched five awards. (Source: Emmys, last accessed September 23, 2015.) While Netflix was nominated for 34 awards, it took home only four this year against the seven it took in 2014.
Translation: audiences like the content provided by Netflix’s competitors more than they do that of Netflix.
This is an important point, because Netflix has been banking heavily on the quality and appeal of its original programming to promote growth.
Individually, none of these points are a massive danger. But together, they point toward a far fiercer battle for viewers and subscriptions in online video streaming.
This was to some degree expected, of course, as the success of Netflix’s business model was recognized and adopted by others.
Despite these issues, Netflix has both the strategic vision and financial stability to weather the storm and maintain itself as a market leader. After dealing with the fallout from this latest economic volatility, and settling competition with new rivals, Netflix just might have what it takes to turn it around and soar higher than ever.
Online video streaming need not be a zero-sum game where if you’re not beating everyone, you’re losing. Traditional television allowed for multiple companies to thrive, with each tuning their business model according to specific market segments.
And finally, there’s the low cost of Netflix subscription to be considered, which is still about 40% cheaper than an HBO Now subscription. If the company can continue producing quality content and focus less on putting up older films, it could find its winning formula.
That’s why I’m bullish on Netflix stock.