Few investors enjoy buying a publicly traded company at all-time highs, so I completely understand the hesitation towards Netflix, Inc. (NASDAQ:NFLX). At this point, all the good news has seemingly been written into NFLX. Furthermore, on a technical basis, shares have entered into overbought territory. The charts are almost telling you that you’re going to hold the bag.
Admittedly, I belong in the “never at all-time highs” club, unless we’re talking about cryptocurrencies, of course!
With Netflix, questions remain about how the company can move forward in the intensely competitive streaming content industry. Everybody, including Walt Disney Co (NYSE:DIS), wants a piece of the action. Disney’s buyout of Twenty-First Century Fox Inc (NASDAQ:FOXA, NASDAQ:FOX) simply adds more fuel to the fire.
Next, you have to factor in the so-called FANG’s robust performance in 2017. Facebook Inc (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc (NASDAQ:GOOG,NASDAQ:GOOGL) all delivered strongly despite their dominating presence. Still, nothing lasts forever. Having defied gravity in the past, Netflix stock might be due for a pullback.
I don’t discount that notion, and not just because NFLX shares are technically overheated. As previously mentioned, investor sentiment probably won’t be too hot on an already soaring company. Moreover, traders who got in earlier will be eager to take profits.
These, however, are nearer-term concerns. Over the long run, Netflix has plenty of upside potential.
NFLX Is Simply More Relevant
Critics often retort how Netflix intends to grow given its massive success, and big competitors entering the fray. The most straightforward answer is that NFLX is simply more relevant than the competition.
As The New York Times points out, between Netflix and Hulu, the former beats the latter handily in the original content space. Critically acclaimed shows, such as Stranger Things and The Crown, attest to this claim. Even with the shocking news House of Cards, the company found a way to mitigate damages. That leverage alone is reason enough to consider NFLX stock.
Along with its original content, Netflix is a winner among international audiences. They’ve been growing their foreign film and programming library, with an eye towards de-levering from a strictly U.S.-based audience. However, international content has a domestic upside as well.
As I pointed out a few times, our country is increasingly diverse. Speaking just one language in a household, though the norm today, is becoming less so. Management clearly understands this, and have pushed for diversity in both general and mature-audience content. Thus, an investment in Netflix stock isn’t just about today’s demand; execs are also looking to tomorrow.
Contrast Netflix’s attitude with mainstream TV, and Hulu’s mainstream media owners. Plenty of studios talk about diversity, but the talk is cheap. For instance, consider CBS Corporation’s (NYSE:CBS) “Hawaii Five-0” and its equal pay dispute for the two Asian-American leads. CBS apparently can’t reconcile the fact that Hawaii is predominantly Asian.
Granted, NFLX still has a lot of work to do when it comes to Asian-American representation specifically. But let’s give credit where credit is due. According to a recent multi-university study, streaming TV providers had the most Asian-American and Pacific Islander representation per program.
NFLX Is More Entertaining, Too!
Another reason why I like the long-term picture for NFLX stock is that the company makes superior content. While this may seem like a qualitative assertion, I’d argue that it’s very much quantifiable.
Remember that when the “House of Cards” scandal broke out, Netflix suffered. However, that slip-up was quickly forgotten. The company not only has great content to satisfy viewers, but it has an uncanny ability to create more. Whether you love cartoons, foreign films, sitcoms, drama, or more extreme fare, Netflix has something for everyone.
As Disney’s “Star Wars: The Last Jedi” demonstrated, staying relevant is a carefully-crafted talent, not a birthright. I thought the movie stunk, and my fellow audience members agreed. Jedi lacked all the elements of a Star Wars film. As confirmation, it flopped in China.
If Star Wars is anything to go by, NFLX should have no problem remaining the dominant player in content streaming. They know exactly who their audience is. More importantly, they know how best to connect with them.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
