The Reign of Netflix Is Starting to Show Its Limitations

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Netflix (NASDAQ:NFLX) was once a king, but now tough competitors like Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL) and Disney (NYSE:DIS) are challenging for the video streaming throne. And with the novel coronavirus sending average people into toilet-paper hoarding frenzies and investors into mass panic mode, the long-term story behind NFLX stock has become even more intricate and questionable than before.

The Reign of NFLX Stock Is Starting to Show Its Limitations

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On the one hand, you’ve got people saying that the “coronavirus cements the company as untouchable,” while on the other hand, you’ve got people saying it’s clearly the “the modern-day Blockbuster.”

These headlines embody the extreme bullish and bearish stances investors are taking on Netflix right now. While not everyone views things quite as one sided as the above headlines might suggest, this leaves us with the question — should you still consider buying NFLX stock?

Let’s take a closer look.

Mixed Reviews for NFLX Stock

The narrative around Netflix has changed quite a bit over the years, with the company making a breakthrough stride off of its streaming service in 2007. It then sprinted further with the debut of high-quality, exclusive programming with House of Cards in 2013. While the rewards from these benchmarks weren’t immediate, this progression has ultimately enabled NFLX stock to catapult more than 2,600% from its IPO price of $15 in 2002 to its current price around $405.

However, the streaming landscape since Netflix reached breakthrough success looks much different. Recently, the stock hasn’t made as many impressive leaps as before.

The advent of the cord-cutting movement and Netflix’s first-mover advantage in the space helped propel it in prior years. However, rising competition and scrutiny towards its content strategy have dampened this momentum.

This slowdown became even more clear after the company reported first-quarter 2020 earnings results on April 21.

Although Netflix managed to post some impressive new subscription numbers, it failed to match Wall Street’s earnings-per-share expectations. And, as Louis Navellier noted, the company “expects viewership to drop and membership growth to slow as the U.S. and other countries lift home confinement rules.”

So, while the company is enjoying a significant boost during social distancing lockdowns, the boost to its growth likely won’t last forever once things start returning to a semblance of “normal.” In the company’s own words, “Intuitively, the person who didn’t join Netflix during the entire confinement is not likely to join soon after the confinement.”

This reality is even more concerning when you consider the effects the virus has had on its exclusive content production for 2021. As Louis Navellier and the InvestorPlace Research Staff also point out, this has analysts “raising questions about whether Netflix’s business model is sustainable when it’s already missing quarterly EPS and is expecting slower subscriber growth.”

Netflix might still be the king of streaming, but that’s not a good look in the bigger picture.

The Bottom Line on Netflix

I’m on the fence about NFLX stock right now.

In the past, I’ve been bullish on it, citing its success amid the cord-cutting movement and dive into exclusive content as promising catalysts. And for the most part, I’ve been right about that, with the company going on to see great success with hit shows like Stranger Things and The Witcher and reaching critical acclaim for some of its films (note: the ones I suggested here aren’t that great, critically speaking).

However, all of that predates the rise of Disney+ and its own breakouts like The Mandalorian. And, of course, with previous analyses, I didn’t factor in black swan events like the coronavirus pandemic — not many out there could have seen that one coming.

Although the virus has helped amplify the company’s success more recently (and thereby bolstered its popularity as a stock to buy), how it manages to stay on top of the competition from here is much less clear, especially with looming financial challenges still at the corner.

Still, despite this uncertainty, there’s an argument for why you can echo the earlier sentiment that Netflix has “cemented” its dominance during the outbreak. For example, InvestorPlace advisor Matt McCall thinks the inevitable slowdown in growth is “hardly a problem for Netflix. If anything, amid the streaming wars … [its temporary growth boost is] a huge advantage. AT&T (NYSE:T) unit WarnerMedia and Comcast (NASDAQ:CMCSA) are launching their own services soon. In the meantime, Netflix’s lead gets only larger.”

Likewise, other analysts argue that while everyone focuses on the rising domestic strength of its competitors, they fail to recognize their weakness on a global scale, relative to Netflix, which has already made significant progress in promising areas for growth like China and India.

All of that sounds great, but it still doesn’t evoke the same kind of confidence I had about the long-term case in the past. As such, I can’t make a clear buy or sell recommendation on the stock right now. While there’s still plenty of room for upside for Netflix, the mountain it has to climb to reach greater success is far more strenuous than before.

That means it might take a little more patience to find out where its competitors truly stand before its reign as king is truly “cemented” in the years to come.

Robert Waldo has been a web editor for InvestorPlace since 2016. As of this writing, he did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2020/04/reign-of-nflx-stock-shows-limitations/.

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