Netflix Stock Cashing In on Diversity?
Netflix, Inc. (NASDAQ:NFLX) stock has fallen more than 17% year to date. Much of Netflix stock’s loss occurred ahead of the first-quarter financial reports in April. This sent many Netflix shareholders running for cover. However, these investors failed to consider Netflix’s potential and the fact that NFLX stock has much more to offer.
If there is a problem with Netflix stock, it has more to do with Wall Street’s expectations than the company’s actual business performance. Netflix has chosen to be cautious—some might even say conservative—delivering guidance that failed to excite analysts. Netflix still indicated that it expects to add some 2.5 million users in the present quarter, but apparently that number was too low in the eyes of some. (Source: “Is Netflix’s International Growth Slowing Down?,” Forbes, April 19, 2016.)
But Netflix stock still has some “get up and go,” as they say. Netflix has confronted volatility in 2016, but it has also revealed unexpected resilience, bouncing back by more than four percent after the Brexit market sell-off. There is a bullish air blowing in Netflix’s direction and it carries the promise of growth analysts have failed to consider. That growth has a name—Asia—and Netflix has a strategy—diversity and multiculturalism.
Netflix is growing everywhere and the best way to increase market penetration is to provide content that will get more of the world watching. It’s a concept as simple as catching the right fish with the right bait.
Recently, Ted Sarandos, the director of content at Netflix, traveled to South Korea to confirm his company’s ambitions in Asia. Netflix will be using a strategy that’s based on diversity. This too often-used buzzword has rediscovered its meaning at Netflix because it brings clarity about where the business should be going. Diversity simply makes sense in the Netflix context. Given that more than half of the 80 million or so Netflix subscribers live outside the United States, the company must offer content to satisfy that demand.
Sarandos also assured investors that the company’s main target market is China, which offers a huge opportunity for the company with its massive population. It would certainly contribute to the kind of rapid user growth rate the company is looking for to compensate for slower growth in the United States. (Source: “Netflix, Inc. Will Continue To Look Into China: Ted Sarandos,” The Country Caller, June 30, 2016.) That should please even the most hardnosed of analysts.
Netflix has failed to establish a presence in China not for lack of diligence, but rather because China enforces strict controls on Internet content in the country. Even Alphabet Inc’s (NASDAQ:GOOG) Google search engine is off limits to those in the People’s Republic.
Nonetheless, Netflix keeps trying to break into the market and it is starting by encroaching the markets surrounding China, like South Korea, for example. Through Korea, Netflix hopes to gradually creep into the Chinese market, which has a fondness for Korean dramas. As for persuading the Chinese regime to allow Netflix to settle on its territory, well, that will require more diplomacy than economics.
Certainly, Netflix has the content to appeal to audiences everywhere. Ultimately, the analysts will not care so much about which specific country’s audience is growing; they just care about the big-picture growth. That growth is coming and that’s one of the simple reasons why investors should seriously consider Netflix now.
Netflix, more than Hollywood or any national media company, produces the most diverse content in the world. From the writing to the casting, Netflix considers and accounts for different cultural characteristics. This may smack of political correctness, but if it helps to build an audience, this is one case when it works. With this strategy, diversity helps to expand the company’s userbase, thereby boosting the value of Netflix stock. In fact, Netflix is presenting itself as the alternative, if not the opposite, of Hollywood.
Many critics and average audiences in the United States and around the world have accused Hollywood of producing films that always highlight a white cast. The 2016 Oscars ceremony did not make light of the charge, even if it used humor to bring the point home to the big studios. Netflix has a different approach; it wants to use diversity to its advantage.
Whether or not you like the multicultural programming, investors will definitely like the profits this will ultimately deliver to Netflix.