Is It Too Late To Buy Netflix Stock?

Despite challenges from worthy adversaries like Amazon Prime, Disney+, and HBO Max, Netflix continues to dominate the streaming market – and it has plenty of room to expand.

At the moment, Netflix boasts 209 million subscribers worldwide, and it is aggressively courting new audiences in emerging economies that were only recently touched by the digital revolution. 

Despite the prospect of continued growth, not everyone thinks Netflix is a buy. NFLX stock has grown by a whopping 503 percent in the past five years, and that has some investors concerned. Has the company peaked? If so, is it too late to buy Netflix stock? 

What Makes Netflix Special?

Tech companies are driving global innovation, and five are particularly impactful: Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Alphabet (GOOG) – otherwise known as the FAANG companies. Together, they have transformed communication, marketing, and entertainment dramatically, and they have made their investors a fortune along the way. 

Netflix is counted among tech giants because it disrupted the $2 trillion media and entertainment industry. It has essentially eliminated its predecessors – including movie rental businesses like Blockbuster – and it has created real competition for movie theaters, network television, and cable. 

Subscribers have a passion for Netflix, which has made it possible for the company to raise prices regularly without losing its loyal fans. Their reasons for sticking around despite periodic price increases are centered around Netflix’s exclusive content and its uncanny ability to identify and present each member with content suggestions that match interests exactly. 

From an investor perspective, this ability to raise prices makes Netflix stock a buy. That’s because Netflix has a simple method of ensuring profitability, regardless of inflation and other risks associated with the larger market. 

Netflix Moat Is Data That Leads To Personalization

Netflix does a lot of things well. After all, there are benefits to being first in an industry, and experience is at the top of the list. Among other accomplishments, Netflix has perfected streaming technology and added all of the features viewers need for a smooth experience. 

In addition, Netflix has successfully developed behind-the-scenes algorithms for increasing viewer consumption. It knows how to lock people in and encourage binge-watching, which deepens members’ relationship with the service. While other services have attempted to match – and even surpass – the platform Netflix put together, none have managed to develop their streaming software to the extent Netflix has. 

Perhaps more importantly, the Netflix moat is made up of data. The company has collected detailed information on user habits since its launch in 1997, and it has made a point of mining that data for insights that allow it to offer users exactly what they want. 

Through data analysis, Netflix knows exactly which programming to offer and when. It can cater to niche audiences and localize its content no matter where in the world subscribers are located. No other streaming company has the amount of user data that Netflix has amassed, making it difficult to knock Netflix out of its market leader position. 

Why Did Netflix Go Up?

Netflix has had its share of ups and downs, but overall, the stock has been winning big. Since its 2002 IPO, when prices were just $15 per share, the stock has grown by 49,381 percent. An investment of $10,000 in 2002 would be worth more than $5 million today, and the company shows no signs of slowing down. 

Netflix went up at a compound annual growth rate of roughly 38.7 percent, primarily because it was a pioneer in streaming services. The product was simple, affordable, and instantly accessible – a step up from available alternatives.

Though other streaming services appeared over time – some of them becoming popular in their own right – Netflix has been able to retain and grow its subscribers through a combination of cutting-edge technology and custom content that isn’t available anywhere else. 

The COVID-19 pandemic highlighted just how much the world has come to depend on Netflix. Through quarantines, lockdowns, and stay-at-home orders, Netflix offered endless entertainment for people of all ages and any combination of interests.

An astonishing 16 million new subscribers signed up over the course of 2020, and most intend to stick around long-term. That’s done wonders for Netflix stock, which is up 25 percent in the past 12 months and nearly 15 percent year-to-date. 

Can Netflix Stock Keep Going?

The pandemic will eventually be extinguished, but that won’t stop Netflix’s growth. Industry experts expect streaming subscriptions in the United States to reach 277 million within five years. Even if some of those consumers choose to join Amazon Prime, Disney+, or HBO Max, Netflix is still likely to see gains. Streaming subscribers have gotten more comfortable with memberships in multiple services, and Netflix remains a staple. 

In 2016, just 47 percent of streaming subscribers paid for more than one service. That figure increased to 70 percent in 2020. Today, a full 74 percent have memberships in two streaming services, and 53 percent of subscribers have three or more. 

The reason subscribers can’t bear to cancel their Netflix subscriptions comes down to content. Streaming services rarely offer the same programming, and most are adding original content at a rapid rate.

Netflix has made a huge investment in its original content, and now that pandemic-related production pauses are over, that content is on its way to the platform. There are more than 500 titles in Netflix’s post-production queue, and the company has announced it will release an original film at least once a week over the next year. That’s sure to keep current subscribers hooked. 

Finally, no one doubts that Netflix will continue to expand in international markets because it has created a comprehensive strategy to capture consumers on a global scale. It isn’t necessarily attempted to woo them with existing content. The company is developing original content produced for specific audiences in a number of countries, including Japan, Germany, and Korea. 

In short, Netflix stock can keep going because Netflix is about endless innovation – and that’s due, in part, to Netflix’s CEO. 

Netflix CEO Is A Visionary

Netflix Co-founder and CEO Reed Hastings is a rare sort of leader.

He has an entrepreneurial spirit, and he is always happiest when finding new and better ways to operate. However, he is also comfortable admitting when he doesn’t know something or when he isn’t the most skilled at a particular function. That humility was never more apparent than when he promoted Chief Content Officer Ted Sarandos to Co-CEO in 2020. 

This move demonstrated Hastings’ understanding of the future of the so-called “streaming wars”. In the end, attracting and retaining subscribers will come down to content, and no one is more qualified to manage content than Ted Sarandos. 

Netflix Will Lose Access To Popular Content

As a company, Netflix faces the same assorted risks as any other organization. However, there is only one that has any real potential to impact Netflix’s bottom line: competition. As more streaming services attempt to compete, Netflix will lose popular content – for example, when The Office moved to NBC’s Peacock. 

Some viewers may follow their favorite movies and shows to another service, but they are more likely to add an additional subscription than they are to cancel Netflix.

The monthly expense is still far less than a couple of movie tickets, which seems like a bargain for unlimited access to more than 15,000 titles. 

Is It Too Late To Buy Netflix?

The bottom line is that NFLX stock remains a compelling investment over the long term. New investors may not see the same exceptional growth that Netflix stock achieved in the past 20 years, but healthy returns are more likely than not. 

An overwhelming majority of analysts continue to rate Netflix stock a buy, and the handful of detractors have yet to present a compelling argument for their position. The current price is around $600 per share, and the average projection is $627.77 per share over the next 12 months.

If the most optimistic of analysts are accurate, Netflix stock has the potential to go as high as $971 per share. Regardless of the exact results, Netflix stock is a smart buy. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.