Netflix Stock: The Entertainment Juggernaut Rolls On

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NFLX Stock Soars on Subscriber Growth

One of my favorite methods of investing is looking at the stocks that benefit from the digital age and are leaders in their field. In a world where nothing is left untouched by the ongoing digital disruption, one of the most impacted industries is entertainment.

There is one company that has changed the way we think about entertainment: Netflix, Inc. (NASDAQ:NFLX). It’s the world’s leading digital television network, with more than 109 million subscribers in more than 190 countries. They watch about 125 million hours of television shows and movies per day. (Source: “Overview,” Netflix, Inc., last accessed November 29, 2017.) 

Although the market is very competitive, with the traditional entertainment companies hopping on the bandwagon, Netflix’s lead is well established. With its technological superiority, amazing recommendation engine, and billions of dollars of investments in original content, the juggernaut is expected to continue rolling along, pushing Netflix stock higher.  

Nearly all cable channels have been losing viewers with the rise of alternatives like Netflix. With the demand for digital content going nowhere but up, this is one industry that cannot be overlooked by growth investors.

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According to the estimates by Technavio, the global video services market was expected to post high growth from 2016 to 2020 and is likely to post an impressive compound annual growth rate (CAGR) of more than 24% by 2020. (Source: “Global Video Services Market 2016-2020,” Technavio, last accessed November 29, 2017.)

And Netflix is at the top of its game. The number of international subscribers continues to increase on the back of the company’s heavy investments in original content. With popular original content offerings, the new sign-ups have been going through the roof. Netflix is one stock that continues to soar higher and higher.

The company recently released its third-quarter results. Global streaming revenue rose 33% in the quarter and was driven by a 24% increase in average paid memberships and seven percent growth in the average selling price (ASP). The company added record 5.3 million memberships globally, which is an increase of 49% year-over-year. (Source: “Q3 17 Letter to Shareholders,” Netflix, Inc., October 16, 2017.)

The gains came at the back of the strong demand for the company’s original series and films, and due to the fact that the world is increasingly adopting Internet-based entertainment.

The NFLX stock price has been gaining strength every passing year and has posted four-digit returns over the last five years. It has gone up by almost 70% in the last year.

netflix stock chart

Chart courtesy of StockCharts.com

Netflix has also been increasing its subscription prices selectively, and this should translate into higher revenue, thereby giving a further boost to Netflix stock. With a big focus on exclusive original content, the long-term prospects remain strong and exciting.  

NFLX stock has lot of growth levers that can help it gain strength in international markets. It is becoming invincible in both content and distribution. Given the momentum in the business, it is most likely that the company’s international subscriber base will get a further push.

Analyst Take:

Netflix has been redefining the future of entertainment and taking lot of risks in the process. This has translated into huge returns for investors. Although the competition will continue to increase in the coming years, the company’s technological prowess and ability to engage viewers with original shows is unparalleled.

Netflix will likely continue to experiment with new themes and invest more in original content. Once its pricing power becomes stronger, higher subscription prices—combined with a large number of subscribers—could result in even higher Netflix stock prices.

As Netflix stock is hovering near record highs, investors should wait for signs of weakness in the price. Those looking for growth should not overlook this stock, as the optimism and strength of the business signal that better days are ahead for NFLX stock.