Without question, Netflix (NASDAQ:NFLX) has both pioneered and dominated the streaming industry which consumers rabidly enjoy today. However, critics of NFLX stock now fear that the innovative company may have eaten most of the low-hanging fruit.
Obviously, NFLX bears currently have the upper hand in determining the broader framework. Primarily, Netflix stock has turned into an unfortunate adaptation of Dr. Jekyll and Mr. Hyde, the characters made famous by classic author Robert Louis Stevenson.
In the first half of this year, NFLX stock gained nearly 42%. But in the second half, shares have so far plummeted almost 27%.
Unfortunately for stakeholders, the volatility has a fundamental basis. Largely, the competition is heating up. Entertainment giant Disney (NYSE:DIS) has made no bones about their desire to take a chunk of the streaming pie.
As it relates to Netflix stock, the Magic Kingdom poses three threats: Disney+ is cheap (at $7, it undercuts Netflix by nearly half), the company has essentially “recalled” its outbound content licenses, and Disney owns massive marquee franchises like Star Wars.
In addition, you have telecommunications behemoths like AT&T (NYSE:T) and Comcast (NASDAQ:CMCSA) crowding into the sector. And just for good measure, consumer tech stalwart Apple (NASDAQ:AAPL) has jumped into the fray with Apple TV+.
True, Netflix has always won out on its original content. Despite some recent missteps, they have a tremendous lead in brand awareness and subscriber count. But the competitive threat to NFLX stock is that, if anything, sheer numbers could tick away at the Netflix’s dominance.
With hungry rivals eagerly – or in some cases, anxiously – piling into streaming, should you cut your losses with Netflix stock?
NFLX Stock to Benefit from Cord-Cutting Economics
Although I have been generally bullish on Netflix stock, I don’t have a prescription for rose-tinted glasses. As our own Laura Hoy described in late August, the streaming company’s second-quarter earnings report was horrendous.
Streaming companies live or die by the numbers. And the numbers that Netflix forwarded were uncharacteristic of the organization. To quickly summarize, NFLX badly missed on domestic and international subscriber growth targets. As Hoy retorted at the time, it’s unlike Netflix “to come in so far below predictions.”
Again, this is terrible news. However, Hoy suggested that the subsequent fallout in NFLX stock could represent a buying opportunity. Despite shares taking a further hit since her article was published, I believe she has a valid case.
Hoy hit it on the head when she stated that “there is room for a few streaming services in the industry as the majority of people subscribe to more than one.” Although many folks focus on which company is winning the price war, they should instead consider the nominal environment.
With Netflix’s basic membership starting at $9 and its premium service at $16, subscribers have options. For instance, you can easily modulate your subscriptions so that you’re getting what you want out of various platforms.
And here’s the most important consideration, in my view: even if you bought multiple premium services, you might come in lower than your average cable TV subscription. That’s because according to a Techwalla post, the average cost of basic cable TV is a little over $64.
At that rate, you can buy exactly four Netflix premium subscriptions. And if we fall into a recession, cord-cutting will accelerate dramatically. With so many entertainment options for cheap, there’s very little reason to stick with cable. Ultimately, that augurs well for NFLX stock.
Netflix Sets the Content Benchmark
Although a somewhat underappreciated factor amid the competition narrative, Netflix stock has one ace up its sleeve: content. Over the years, they have delivered riveting material that has captured audience’s attention and converted lookie loos.
Notably, I see that same fire with the company’s much-anticipated film, The Irishman. While NFLX may have offended major cineplex chains for its intention to release The Irishman on its streaming platform only three weeks after its theatrical debut, the critics are missing the bigger picture: Netflix has graduated to elite status.
Featuring Hollywood A-listers throughout the entire production effort, The Irishman may very well embody Netflix’s long and illustrious journey. In my opinion, none of the other streaming players have this much artistic credibility. Thus, don’t be surprised to see NFLX stock move higher once this panicked environment fades.
As of this writing, Josh Enomoto is long T stock.