Emmys Sweep Confirms Bullish Thesis for Netflix Stock

Although NFLX missed on subscriber growth last quarter, its quality content will drive continued success

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Source: Vivian D Nguyen via Flickr (Modified)

Media entertainment award shows are incredibly arbitrary, and for good reason. No purely objective or quantifiable grading standard exists. Nevertheless, Netflix’s (NASDAQ:NFLX) huge night at the Emmys earlier this week demonstrated an undeniable fact: Netflix content resonates with audiences, finally giving embattled Netflix stock a reprieve.

At the renowned event, NFLX took home 23 awards. To put this into context, the online-streaming company received 112 total nominations. Mathematically, that means Netflix put the ball into the end zone more than 20% of the time they were there. And even more significant, the streamer beat out premium-cable king HBO, which had 108 nominations.

Netflix also tied HBO in terms of total wins, which is a key reason why NFLX stock bumped up. According to CNBC, HBO had been the top network award winner for the past 16 years.

Not only that, the premium-cable giant levers astonishingly popular programs. Of course, no discussion is complete without mentioning Game of Thrones. Personally, I’m not sure what most people see in this. Isn’t it an American high school rite of passage to beat up nerds playing Dungeons & Dragons?

But the numbers don’t lie. HBO routinely puts up bonkers numbers for Game of Thrones. Additionally, the company has other attractive, relevant content such as Westworld, Big Little Lies and The Young Pope.

That NFLX has caught on to the top players in this industry is a gamechanger. Everyone wants a piece of the streaming pie. Most notably, Amazon (NASDAQ:AMZN) jumped into the fray, along with Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) YouTube.

However, Netflix, and by logical deduction, Netflix stock, has made the strongest case for itself. The company has moved beyond just merely offering convenience to delivering compelling, must-watch content.

Netflix Stock Isn’t Just a Subscription Play

Naturally, those who witnessed the weakness in NFLX stock following the company’s second-quarter 2018 earnings report may have doubts. Is this Emmys boost the real deal or a one-off event?

To answer this question, we should look at why Netflix stock tanked following Q2. Shareholders didn’t get the warm and fuzzies when management disclosed a subscriber-growth miss. Against a consensus forecast of 1.23 million new domestic subscribers, the company only added 674,000. Internationally, experts predicted 5.11 million additions, but NFLX could only muster 4.47 million.

This was the first such miss in five quarters. Ordinarily, the markets may have offered a pass. But NFLX stock is no ordinary investment. Against the backdrop of sky-high expectations, the Q2 results represented a reality check.

As our own Vince Martin argued, the subscriber miss was worrying because it might mean their content isn’t attractive enough for newcomers. Martin wrote:

“And that’s why the Q2 miss hurts. The case comes down to return on the company’s content investment. If U.S. subscribers are nearing a ceiling, that ROI isn’t going to be enough. A sharp deceleration in Q2 from previous growth rates suggest that all that original content might be enough to keep new subscribers — but it isn’t attracting enough new ones.”

At the time, Martin’s argument was a gut check. However, the Emmys probably softened the blow. Don’t get me wrong: his point is still valid. But at least this time, the bulls have substantive reasons for their optimism.

NFLX didn’t just win; it dominated. The company is also giving HBO something to think about. Now, the company doesn’t just offer an inexpensive service. It also provides the content that incentivizes consumers to cut the cord. Ultimately, I believe that’s net bullish for Netflix stock.

NFLX Has Better Appeal for International Audiences

Another factor that boosts NFLX stock is the underlying company’s appeal to an international audience. I argue that Netflix content is more appealing because they’re realistic.

How so? The company focuses intently on diversity, and it shows. After all, America, even in places like Mobile, Alabama, have become increasingly cosmopolitan. Unless you’re living in the backwoods of Wyoming, it’s rare to not see a non-white person.

Consider for example YouTube’s ultra-popular Cobra Kai, which is based off The Karate Kid film. I could swear karate is a Japanese export, yet Asian characters play minor roles in Cobra Kai.

Netflix, though, is at least attempting to change this whitewashed approach. The Huffington Post once offered reserved praise for NFLX and its competitors. Black Enterprise also gave credit to Netflix specifically, while still pushing for income equality.

Of course, management has room for significant improvement. I believe they’ll respond affirmatively because the money is too good. The world’s future is shifting eastward, and the leadership understands this. Better yet, their overall strategy is working, and that’s ultimately the reason you’ll want to consider Netflix stock.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2018/09/emmys-sweep-confirms-bullish-thesis-for-netflix-stock/.

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