Without a single shred of doubt, Netflix, Inc. (NASDAQ:NFLX) is one of the strongest investments this year. Sure, you can find other companies that have more superior returns than the streaming-content provider’s 58% year-to-date haul. But not too many names with more than $80 billion in market capitalization can compete with the Netflix stock price. Nor do most companies have the same brand awareness.
Yet its mercurial run hasn’t been without its fair share of steep challenges.
For starters, the Netflix stock price had more twists and turns than a roller-coaster at Six Flags Entertainment Corp (NYSE:SIX). Furthermore, the NFLX news stream is a mixed bag for the company.
On one hand, the growing subscriber base is a major win. But on the other, developments like Walt Disney Co (NYSE:DIS) dumping Netflix in favor of its own content-streaming services placed a dark cloud on NFLX stock. The shocking move led ValueWalk’s David Trainer to issue a warning on the company’s future prospects.
But in no small part, what keeps investors plugged into the original content streamer is the near-bulletproof Netflix stock price. Since Trainer disclosed his concerns, shares are up nearly 16%. I’m not here to call anyone out; I simply want to acknowledge that the markets sometimes have their own logic. In this case, Wall Street loves Netflix, whatever may be reported in the latest NFLX news.
But on another cautionary note, no company is granted perpetual immunity. The announcement earlier this month that Netflix will be raising prices for its services is presently viewed as a positive. But can such a daring move dim the lights on NFLX stock?
The NFLX Stock Price Faces a Slew of Challenges
As InvestorPlace feature writer James Brumley dryly notes, “A higher subscription price means more revenue, which in turn sets the stage for more respectable profitability.” Fundamentally, that’s amazing for shareholders, if the raised rates don’t hurt the subscription. So far, the markets are very optimistic. The Netflix stock price is a few bucks shy of $200, and up 7% for the month.
Additionally, Brumley writes, “What’s a couple of bucks per month? A price increase of less than the cost for a decent cup of coffee should be no big deal, right?”
Unfortunately, this is not the first time that the streaming-content provider hiked rates, to the detriment of Netflix stock. You also don’t have to reach far into the archives of NFLX news to dig up the dirt. Last year in April, the firm announced a $2 monthly fee hike, which subsequently resulted in fewer-than-expected subscriber growth. Oh, and NFLX stock got kicked in the teeth upon the sub-growth disclosure.
On top of all these questions, shareholders must wrestle with fierce competition from Amazon.com, Inc. (NASDAQ:AMZN), AT&T Inc. (NYSE:T) and even Sony Corp (ADR) (NYSE:SNE). The Sony alternative, called PlayStation Vue, is an interesting one because it’s essentially a hybrid service: the Vue offers on-demand content and real-time network programming. Brumley points out that NFLX can’t do that, potentially spelling trouble for the Netflix stock price.
Despite the cord-cutting that our own Luke Lango mentions, this is a rising tide that lifts all boats. It’s not a tailwind that only Netflix can leverage. As the company gets bigger, it has to deal with the law of large numbers. Simply stated, it’s going to get harder for Netflix to maintain its first-to-market advantage.
Don’t Overlook the Upside Within the NFLX news stream
In light of the bearish NFLX news, is now the moment to call time on Netflix stock? I’m not really into buying high-flying shares in the hopes that they move even higher. Nevertheless, I have three reasons why you shouldn’t drop NFLX just yet.
First, you don’t want to fight the tape. While the nearer-term picture is choppy, the longer-term trend is generally strongly bullish. And despite Brumley’s warnings about hiked rates, the Netflix stock price did eventually move higher, much higher.
Second, the primary reason why the company is so popular is due to their quality of content, not just quantity. By that, I mean Netflix’s original productions. Many of their shows, including “House of Cards” and “Stranger Things,” found rabid fan bases. Plus, subs have plenty of options, ranging from drama to comedy to animated programming.
Third, I love that Netflix has a vast library of international content. Our nation is becoming more diverse, and the days of English being the only language spoken will fade significantly. Moreover, consumers today arguably have a hunger for foreign films and content than ever before.
Innovations from Alphabet Inc (NASDAQ:GOOG,NASDAQ:GOOGL) and Facebook Inc (NASDAQ:FB) have made our world a little smaller. This dynamic will reflect on the type of content Netflix subs choose, and in turn, boost the Netflix stock price.
Josh Enomoto is long SNE.