Netflix (NASDAQ:NFLX) is on its way to content dominance and Netflix stock will continue to see rising numbers. That’s not a huge revelation for some, but hearing it from an industry person was extraordinary.
Current IAC (NASDAQ:IAC) and Expedia (NASDAQ:EXPE) chairman Barry Diller who is also the former CEO of Paramount and Fox, made waves this week by saying in a podcast that “Hollywood is irrelevant.” His rationale is simple. Netflix has won the content game given its unprecedented size and reach, which give it an unparalleled ability to outspend its Hollywood peers.
This has broken the Big 6 Hollywood studio hegemony. He further believes no other competitor will reach Netflix’s size and reach, and thus, believes Netflix is and will continue to be the runaway leader in the content market.
If Diller is right, then that’s certainly a reason to buy and hold Netflix stock for the long run.
Indeed, Diller is right. Netflix has won the content game. All of it has to do with the company’s scale and reach. But, a bigger-than-peer content budget is only one advantage of being bigger.
The other advantage? Data. Netflix has nearly 150 million global subscribers. That’s 150 million people interacting with Netflix on a presumably weekly basis, essentially telling the platform what they want to watch, and when they want to watch it. Given all that data, Netflix has a head-over-heels advantage over Hollywood in not only creating content consumers want to see, but also delivering that content when and how they want it delivered.
Together, these data and budget advantages mean that Netflix has already won the content game. Because of this, Netflix will continue to add subs at a robust pace over the next several years. This sustained healthy pace of sub growth will keep Netflix stock on a winning path.
Netflix Has Won The Content Game
Barry Diller is right. Netflix has won the content game, and it’s all because Netflix has reached escape velocity in terms of size and reach. Importantly, no one else will get there any time soon.
Netflix launched at a time when there were no other streaming services. Because of this, Netflix was viewed as the only (legal) way to stream movies and TV shows, so everyone jumped on board, and Netflix got an early lead.
Then, once streaming became more democratized, Netflix became the first to go big with original content on a streaming platform. Yet again, nobody else was doing this. Everyone jumped on board, and Netflix widened its lead.
In other words, Netflix was first to streaming and first to original content. In so doing, they were the first to 100 million streaming subscribers.
No one else will get there anytime soon, if ever. Times have changed since Netflix streaming launched over a decade ago. Now, there’s dozens of streaming service options out there, including Netflix, which has become the standard for streaming. Given that hugely competitive landscape, it is far harder today to go from zero to 100 million subs, than it was back when Netflix did it. In fact, one could say that it’s nearly impossible.
Thus, for the foreseeable future, Netflix projects to be the biggest in this space. That gives the streaming giant two critical advantages. One, it allows the company to outspend its peers, since there are more users from which to monetize content. Two, it gives Netflix a plethora of consumer preference data, from which Netflix can create content consumers actually want to watch.
The implication of these two advantages is that, for the foreseeable future, Netflix will continue to pump out more content than anyone else and that content will best-in-class.
All that means one thing: Netflix will continue to grow its subscriber base at a healthy rate over the next several years.
Netflix Stock Will Stay on a Winning Path
If you’ve heard one thing about Netflix stock, it’s probably this: Netflix stock trades based on subscriber numbers. When the sub numbers are good, Netflix stock roars higher. When they aren’t, the stock drops.
That’s because everything else falls in line behind subs. If subs go up, revenues go up, and so do margins since its mostly a fixed cost business on the income statement. Plus, more subs usually give Netflix more firepower to spend on content, which will, in turn, give the platform more wiggle room to hike prices.
Prices hikes also improve revenues, margins, and profits. Thus, robust revenue, margin, and profit growth all start with strong sub growth.
Given that Netflix has won the content game, sub growth will remain strong for the foreseeable future. So long as that remains true, Netflix’s revenues, margins, and profits will keep marching higher. As they do, Netflix stock will stay on a winning path.
Bottom Line on NFLX Stock
Barry Diller is right. Netflix has won the content game. That means going forward over the next several years, Netflix will continue to produce the most and the best content. Competition will be muted. Sub growth will be robust. And Netflix stock will head higher.
As of this writing, Luke Lango was long NFLX.