In November, I called Netflix (NASDAQ:NFLX) the best contrarian trade in tech. Falling markets had dragged Netflix stock down with them. That in turn gave NFLX a chance to bounce when investor confidence inevitably returned.

Indeed, as I wrote at the time, nothing really had changed in the Netflix business. Its Q3 results were solid, and the company still was dominating streaming. Investors simply were nervous about the big multiples assigned NFLX (and so many other stocks) and were heading to cash as a result.

It was a sell-off caused by external factors, not any real changes in the outlook for Netflix. And as investor confidence has returned in 2019, NFLX stock has soared. Netflix stock is up 31% from where I recommended it (a little early, admittedly), with a 50% bounce from the lows and 27% gains in 2019 alone.

And at this point, it might be time to take profits. I still think the long term story here is intact, but the easy money has been made. The cash flow worries around Netflix are overblown, but the company’s expensive investments in content aren’t without risk. Meanwhile, a market cap back near $150 billion prices in quite a bit of potential success.

In the near term, external factors might again hit NFLX stock. Another market-wide sell-off is going to take NFLX down. And even if tech stocks on the whole hold up, the narrative around NFLX is set to be very different over the next twelve months than it has been over the past few years. And that narrative seems likely to provide patient bulls a better entry point for Netflix stock.

The Argument over Netflix Stock

At this point, the argument over Netflix stock largely comes down to a debate over long term profits. Even the most ardent NFLX bear likely will admit that Netflix will be a part of the worldwide entertainment landscape for years to come. For the most part, the disagreement between bulls and bears comes down to growth and valuation.

It was that fact that made NFLX look intriguing as it pulled back late last year. Markets were worried about China, interest rates, and a potential macro cycle turn. But none of those factors really mattered to NFLX stock all that much. The company essentially has zero presence in China. A recession potentially could help Netflix subscriber growth, with more cost-conscious consumers cutting the cord.

Perhaps Netflix stock was overvalued at $400+ last summer. That aside, however, the downturn seemed likely to reverse when investor appetite for risk returned. It happened sooner and more strongly than I expected.

But, with a solid Q4 earnings report and analysts still behind the stock, the gains aren’t necessarily that surprising. Netflix continues to do what it needs to: drive subscriber growth. And with external worries about “the market” fading, NFLX stock has reacted accordingly.

Competition on the Way

The whipsaw trading in NFLX in the last few months, then, looks driven mostly by external factors. But that’s exactly would what worry me about holding Netflix stock for the rest of the year. The external noise is going to get quite loud this year.

Most notably, pretty much everyone seems to be rolling out a streaming service this year. Disney (NYSE:DIS) seems like the most fearsome competitor, and should give more detail on its strategy in its earnings report this week. And it will own 60% of Hulu once its acquisition of Twenty-First Century Fox (NASDAQ:FOX,FOXA) closes, giving it control over another Netflix rival.

But Disney isn’t alone. AT&T (NYSE:T), armed with content after its acquisition of Time Warner, has a three-tier service on the way. Comcast (NASDAQ:CMCSA) unit NBCUniversal will launch its streaming option in early 2020.

The marketplace is going to get crowded. And the number one goal of every one of those companies will be the same: to peel off Netflix subscribers, or at worst position themselves as a complementary option.

Netflix Stock in 2019

To be honest, I’m skeptical those rivals, particularly beyond Disney, will have much success. AT&T’s DirecTV Now service already is struggling, and the offerings from what is now known as WarnerMedia don’t look like quite enough on their own. Comcast’s NBCUniversal networks already are struggling to attract viewers; a platform change doesn’t necessarily fix that problem.

But as far as 2019 trading in NFLX stock goes, that opinion isn’t necessarily all that important. There is going to be a constant drumbeat of noise over the next twelve months as rival after rival goes after Netflix. And it’s difficult to imagine that won’t have some effect on Netflix stock.

The bull thesis that Netflix will maintain its growth and its dominance despite expanding competition won’t be proven for years. The bears, meanwhile, will have a steady supply of ammunition.

From a midterm standpoint, then, there seem to be a lot of risks to NFLX stock. Another broad market sell-off likely brings the stock down. A revitalized Hulu under Disney ownership could become a bigger threat. Even modest projected success from the new offerings likely suggests some pressure on Netflix subscribers and growth.

Plus, back near $350, NFLX doesn’t have much room for error priced in.

The risk here isn’t necessarily that competition will win, or that Netflix will somehow be outmaneuvered by Disney and/or the other giants playing catch-up in streaming. The risk, at least in 2019, is that investors will worry that might happen.

After a 50% bounce, that’s pretty much all that it takes. And it seems unlikely that Netflix stock will go the next twelve months without those worries rising at some point.

As of this writing, Vince Martin has no positions in any securities mentioned.