Shares of streaming giant Netflix (NASDAQ:NFLX) are up 20% year-to-date. Ostensibly, that seems like a good year, but, it wasn’t a good year for the company. Instead, competition concerns turned Netflix stock from a must-own growth play with a ton of momentum, into a questionably overvalued stock treading water.
NFLX stock actually underperformed the broader market in 2019 (the S&P 500 is up 30% year-to-date), didn’t live up to standards in the big tech category (the Nasdaq-100 is up 40% year-to-date), and turned in its fourth-worst annual performance of the decade. Shares also presently sit more than 20% off their 2018 highs, whereas the rest of the market has surged to all-time highs.
In other words, NFLX stock rose in 2019, but it didn’t win — shares lost their shine thanks to Disney (NYSE:DIS), AT&T (NYSE:T), and many others entering the streaming game, and making for a much tougher competitive landscape for Netflix.
Calendar 2020 will much be different. If 2019 was the year that Netflix lost its momentum thanks to escalating competition concerns, 2020 will be the year that the company regains that momentum as those competition concerns prove to be overstated. NFLX stock will rock higher, out-perform the broader market and big tech peers, and surge to all-time highs. Here’s why.
Netflix Lost Momentum in 2019
There’s no denying the simple truth. Netflix lost its growth momentum in 2019 thanks to escalating competition concerns.
That is, in 2018, Netflix was essentially one of only three relevant streaming services in the world, with Amazon (NASDAQ:AMZN) and Hulu being the other two. But, in 2019, Disney — the world’s largest media company — and Apple (NASDAQ:AAPL) — the world’s second largest tech company — launched streaming services. AT&T announced intentions to launch an HBO streaming service. Comcast (NASDAQ:CMCSA) announced similar intentions.
In other words, in 2019, the streaming landscape went from a three horse race, to an overly crowded market with a ton of viable, deep-pocketed players.
Naturally, that weighed on Netflix investor confidence, especially since the company turned in quarterly numbers in 2019 that showed slowing user growth. This trend, coupled with fears that growth will slow even more as the competition heats up, caused NFLX stock to have a sub-par showing in 2019.
Netflix Will Regain Momentum in 2020
Despite all of that, there’s also another simple truth hiding in plain sight, and it’s a much more favorable truth for NFLX bulls: Netflix will regain all of its growth momentum in 2020.
The sum of non-Netflix streaming services — namely, Disney+ and Apple TV+ — are all great. But, none of them have the depth or breadth of original content that Netflix has. Disney+ has only had one big hit with The Mandalorian. Apple TV+ also only had one big original hit with The Morning Show. Meanwhile, in basically the past month alone, Netflix has released big original hits like You (season 2), The Witcher, Marriage Story, The Irishman, The Two Popes, and 6 Underground.
In other words, Netflix is still killing the competition on the original content front. This will remain true for the foreseeable future, mostly because Netflix has more resources (they are spending way more than everyone else on developing original content for their streaming service) and more data (they have years of viewing habit data on 150 million global accounts).
There are two big implications here. First, current subscribers aren’t getting enough content elsewhere to warrant canceling Netflix, so they won’t. Second, future potential subscribers will see Netflix as the superior option in streaming with the most bang for their buck, so they will continue to sign up for Netflix.
Consequently, throughout 2020, Netflix will report big growth quarter after big growth quarter, the sum of which will ease competition concerns surrounding NFLX stock. Investor sentiment will grow more optimistic, resulting in multiple expansion. Analyst sentiment will also grow more optimistic, resulting in upwards revisions to forward earnings estimates.
This combination of easing fears, multiple expansion, and rising forward estimates should spark a big-time performance from NFLX stock in 2020.
Bottom Line on NFLX Stock
Netflix had a rough 2019, characterized by escalating competition-related concerns. In 2020, Netflix will put those concerns to ease. As they do, Netflix will regain its growth momentum, and NFLX stock will have a blockbuster year.
As of this writing, Luke Lango was long NFLX, T, and AAPL.