If you are a long-term holder of Netflix Inc. (NASDAQ:NFLX), good for you. Over the last five years you’ve hit what folks like me call a “10-bagger.” Your investment in Netflix stock is up over 1,000% in value. Just since Jan. 1 you’re up 65%.
Rather than argue about whether you might get another percentage or two out of the shares, however, it might be more valuable to consider the lesson of the success of Netflix stock for your other investments.
Here it is. Riding the clouds is profitable. The Cloud Czars continue to build-out enormous storage and (now) transmission capacity in their data centers. The more of that capacity a company can buy, the more it can use, the more profitable it can be.
It’s not just that clouds are profitable, but that using them is, too.
Top of the Cloud
What they have in common has been a willingness to go “all-in” on cloud, to put all their capital into building true cloud-based applications.
Companies that have fought the cloud, like Oracle Corporation (NASDAQ:ORCL), are now hustling to catch up, building out their own cloud platforms. But it’s the cloud providers themselves, the companies that first got this message, that now dominate the global economy.
I call these companies the “Cloud Czars.”
Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT), Alphabet Inc (NASDAQ:GOOGL), and Facebook, Inc. (NASDAQ:FB) committed the $1 billion/quarter in capital needed to play the new great game.
Sometimes (as in the case of Facebook) before they were financially ready.
They took the risk and reaped the rewards. So, too, have their largest customers.
Netflix stock benefited by when the company became an early customer. It agreed to go on Amazon’s cloud years ago, but not blindly. It has its own content delivery network, OpenConnect, which allows it to arbitrage capacity and keep delivery costs down. This is great for Netflix stock.
Thanks in part to OpenConect, Netflix is not afraid of competing directly with Amazon Prime Video. Thanks to Amazon, it is miles ahead of broadcast-based competitors from a technical standpoint.
This includes AT&T Inc. (NYSE:T), which put what could have been its cloud investment into dividends and stock buybacks and whose DirecTv Now has to play catch-up.
The Real Rivals for Netflix Stock
Netflix has been pitched as a rival to the Time Warner Inc (NYSE:TWX) HBO service, and thus AT&T’s pending purchase of Time Warner is, along with DirecTv, supposed to provide real competition.
It won’t, because of cloud technology investments Netflix made years ago. This goes for all the other streaming content plays out there, from Hulu to Walt Disney Co. (NYSE:DIS). First mover advantage can work if the first mover is willing to keep moving.
Thus, all these content deals. They’re not being done blindly. Netflix has long used its data on what subscribers watch to drive what it buys. And it gives producers a “deal they can’t refuse,” the kind of autonomy and control even a President can love.
The Bottom Line on Netflix Stock
Using the cloud means more than saving files to it. Netflix uses cloud to arbitrage its delivery costs, and to determine what content to buy based on user preferences. This is its real secret sauce.
But the business is more than sound, because Netflix went all-in on all a cloud can do. Look for that in your other investments.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in MSFT, T and AMZN.