Netflix (NFLX) stands at the forefront of a revolution that’s changing the way people view video. Gone are the days when consumers were saddled with a bunch of channels and programming they didn’t want but were forced to pay for.
Also gone are the days when consumers had to wait to see episodes of their favorite programs. Millennials in particular have become accustomed to watching whatever they want, wherever and whenever. NFLX is wisely capitalizing on consumers’ desire to say goodbye to the costs and restrictions of cable television.
And despite trading at more than $620 per share — and just off its all-time highs — Netflix is going to continue to be a winning stock.
NFLX Takes Advantage of Cable Cutting
It’s no secret that cable rates, which seem to climb higher every year, have people fighting mad. And this is one of the main reasons people are ditching their cable companies and subscribing to internet video streaming services like Netflix.
According to a report by the Leichtman Research Group, more than 150,000 subscribers from the top 13 cable companies cancelled their cable subscriptions in the third quarter of 2014, compared to just 25,000 in the same period in 2013.
The report noted that this was the greatest net loss of subscribers going back at least to 2002, when the company was founded. To date, the greatest net loss of cable subscribers tracked by the company came in the second quarter of 2013, when 350,000 subscribers bolted.
This all has frightening implications for cable companies: namely, that more and more subscribers are choosing to cut the cable cords in favor of cheaper and more tailored programming options. Netflix fills that void perfectly.
Expansion Opportunities for NFLX
Netflix is already available in about 50 countries internationally, having expanded into several European markets last fall, including Germany and France. And Asia isn’t far behind, as NFLX plans to open shop in countries such as Japan and even China.
NFLX added 4.9 million total subscribers last quarter, up from the 4.3 million it added the previous quarter. This pushes the total number of U.S. streaming subscribers to 60 million and ups the international number of subscribers to more than 20 million.
Although Netflix said it exceeded its estimates in terms of adding domestic and international subscribers, there are concerns about whether NFLX will be able to establish a strong and sustained presence overseas.
The issues have to do with everything from possible broadband limitations to local regulations to content-licensing agreements. But NFLX has had to navigate these issues before and seems adroit at clearing these potential hurdles if history is any indication.
The Bottom Line
Netflix was one of those companies touted as the next big thing, and it appears to be living up to that hype, as subscribership continues to grow and the stock continues to climb. Although other tech companies have been lauded only to fizzle, market trends seem to indicate NFLX is here to stay.
As of this writing, Will Emerson did not hold a position in any of the aforementioned securities.
