Streaming service Netflix (NASDAQ:NFLX) has been a top performer throughout the novel coronavirus pandemic. More people cooped up inside their homes has translated to rising investor confidence in NFLX stock. That’s helped the company’s share price rise by 35% since mid-March.
But what will happen to the entertainment star now that economies are reopening and people can get outside? Will the momentum last?
The answer is yes — the coronavirus has accelerated a massive shift toward online services. It isn’t just a temporary tailwind. While it may be true that some of Netflix’s most recent subscribers only joined to pass the time during the lockdown, the firm is likely to see continued enthusiasm as economies reopen.
How NFLX Stock Fits Into Pandemic Plays
There are some stocks that have seen a temporary pandemic-fueled bump and others for whom the global crisis will remain a long-term catalyst. Netflix is in the latter camp because its subscribers are likely to stick around.
First of all, a Netflix membership won’t break the bank and the firm offers a wide variety of shareable subscriptions that make the service cost-effective for a wide range of households. Not only that, but Netflix has invested heavily in creating its own quality content.
Love it or hate it, Netflix’s bizarre documentary Tiger King is the perfect example of how the company has been able to create a buzz. That kind of content, which is heavily shared across social media, gets people to look into a Netflix membership. The rest of its exclusive content, from stand up comedy to feature films, gets them to stick around.
Cord-Cutting Ramped Up
What’s more, the boost in subscribers that Netflix received probably isn’t temporary according to consumer behavior. As Netflix subscriptions rose exponentially, cable and satellite companies saw their subscribers leaving in droves.
A big part of the reason for that has been the absence of traditional sports — that was one of the final remaining draws of live television. With all major sports on hold, many people simply didn’t have enough reason to keep their cable subscription.
The shift was also due to the large number of hotels, restaurants and bars that shut down. Not only were they lacking content to show, but they were lacking customers to watch it. Louis Navellier said he sees Netflix filling a temporary hole for hotels that don’t want to pay for cable subscriptions while their budgets are tight.
Another concern for many investors is rising competition in the streaming space. After all, Disney recently unveiled its own streaming service that has proven to be widely popular. But research shows that people have room for more than one streaming service in their lives, especially if they’ve cut out traditional cable completely.
A study by Vindicia shows Americans tend to watch between three and four services. For now, Netflix is the 1,000-pound gorilla in the space, securing its position in the top three.
Growth Can Continue
Finally, you might think that NFLX stock has very little room to grow considering it’s already a top streaming provider and it just had an influx of subscribers. But according to Jefferies the firm still has plenty of room to run. Not only does Netflix have a huge international growth runway, but Jefferies believes that Netflix subscriber growth will remain in the double digits for the next few years: “Importantly, our revenue growth assumes a 15% subscriber CAGR and just a 3% ARPU [average revenue per user] CAGR, mitigating the bear thesis that sizable price hikes are necessary.”
Plus, Jefferies noted that the firm has been able to significantly improve its margins and will likely continue to do so in the quarters to come. That’s a big deal for the future of NFLX stock because it means the firm can start funding some of its own projects. “We believe NFLX will soon reach sustained FCF profitability, in which it will be able to self-fund content and become less reliant on tapping the capital markets,” Jefferies pointed out.
The Bottom Line on NFLX Stock
Netflix is a quality stock that isn’t going to falter when the world comes out of the pandemic. Plus, the streaming service is affordable enough that most people will hold on to it even during a prolonged economic downturn. NFLX stock isn’t exactly cheap right now, but the firm is unlikely to see another massive drop, so it’s worth building a position at these levels.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.