We all know Netflix, one of the most revolutionary inventions of the 21st century thus far. Netflix completely changed the movie industry, and wiped the movie rental business clean. As of July 20th, the company harnesses 209 million subscribers worldwide, an incredible number. Few things in this life are true household names, yet Netflix is one of them. But can Netflix, and the Netflix stock, bank on continuing to see the same rise in success it has over the past 15 years?
The Stock Price Is at a Standstill
Over the past 5 years, Netflix stock is up 500%, flat out incredible. But in the past year it is only up 7%. This not a terrible figure, but when compared to other stocks of it caliber such as Apple, Microsoft, and Google, it lags behind in year growth. The quarterly financials all have great growth year-over-year and its EPS beat expectations by 28%.
The choppiness of the stock over the past year has left investors questioning. Why pay such a high share price of $550+, just for 7%. With one Netflix share, an investor could almost 4 full shares of Apple. This buy would yield higher percentage gains, and less choppiness. Every stock is choppy to some degree, but usually trends upwards, Netflix stock has not seen a drastic enough upward trend for its capability. What could be causing this?
What was once a space absolutely dominated by Netflix alone, streaming services are very popular now. From Hulu, to Peacock, to Amazon Prime, and not to mention almost every TV network has their own platform. The CW, TBS, Disney+, just to name a few.
While it is common for people to have multiple streaming platforms, all the options provide consumers with an advantage they haven’t had. Before, it was search around Netflix until you found something to watch. Now, its look on Netflix, then look on other platforms until you find something best. If you do this enough, you will eventually ponder whether or not you need Netflix. If enough people do this, we see slowed subscriber growth, like Netflix reported this past quarter.
The Near-Future is Vital
Netflix is at a very important point in its business journey. To keep up revenues they have pulled out what I believe is a few shots in the dark. One is there look into the growing gaming industry. In our discussion of Nvidia, we talked about how the gaming industry is changing. Netflix claims to want to offer video games as well as movies, downloadable like they are on consoles. It could work, but takes Netflix away from their core image.
A rumor that has also floated is Netflix considering short ads on their platform. The one pride of Netflix has always been never showing ads. However, ads could boost profits tremendously, as Netflix already loses out on hundreds of millions of dollars every year from shared accounts. The day an ad is shown on Netflix, I believe will be a poor day for the company. It will prove they gave in, and sacrificed their quality for profit, and they are aware.
Is it a Buy?
Personally, I think there is not enough potential in Netflix right now to trigger a buy at its current price of $590.53. This is a very high price for a stock that could be potentially just hoping to match revenue numbers quarter to quarter for the next year. On the other hand, I don’t believe it should be sold either. Stocks can’t go up 500% for 5 years forever. Maybe we expect too much from Netflix stock because of its recent past. Also, financially the company is in a good spot, which isn’t always easy to come by. Don’t jump ship on Netflix, but don’t get on the ship just yet.