Much like the internet in the 1990’s, streaming is really still in its infancy. It might not feel that way, especially since Netflix (NASDAQ:NFLX) is now a household name and the stock is much higher than its initial-public-offering price.
Some investors who missed the boat on NFLX stock might think it’s best to wait for the price to come down a lot. Perhaps they’re fearful that the streaming market is “running too hot.”
Or maybe they’re concerned about Netflix’s competition, and particularly Disney (NYSE:DIS) with its up-and-coming Disney+ streaming service. It’s perfectly fine to own Disney shares if you want to, but the arguments against holding NFLX stock simply don’t hold up.
The Undisputed Heavyweight Champion
It’s practically impossible to find data disputing the contention that Netflix is No.1 in the streaming wars. Regardless of the competition, Netflix is the brand-name leader that’s top-of-mind when people think of streaming-content providers.
Disney wants to change that, of course, but it just doesn’t have the numbers yet. If we combine all the subscribers of Disney+, Hulu and ESPN+, the total is around 90 million. That’s fewer than half of Netflix’s 182 million subscribers.
And in the first quarter of this year, ViacomCBS (NASDAQ:VIAC) had 13.5 million paid streaming subscribers. That’s not too bad for a relatively recent entrant into the streaming space, but it’s nowhere near Netflix’s vast pool of subscribers.
Moreover, just because Netflix has the greatest number of subscribers, this doesn’t mean that the “law of diminishing returns” is setting in. In fact, it’s entirely possible that the gap between No. 1 and No. 2 will only get wider.
In the first quarter of 2020, Netflix surprised even the more optimistic analysts by reporting 15.77 million new monthly subscribers. That’s a record for Netflix, and it represents an impressive 23% year-over-year increase.
The Cord-Cutting Catalyst
To be honest, even Netflix didn’t expect such a massive quarterly jump in the number of new subscribers. Prior to the spread of the novel coronavirus, the company had “only” anticipated a quarterly increase of 7 million new paying members.
“Only” is a relative term, since 7 million new quarterly subscribers would have been pretty good. But the unfortunate advent of Covid-19 gave rise to stay-at-home requirements, and that basically made watching streaming content America’s national pastime.
You might think that the cable television industry, a competitor to Netflix’s streaming services, would also have benefited financially from the coronavirus. Yet, at least according to first-quarter data, the complete opposite actually transpired.
It may strike you as counter-intuitive at first, but the cord-cutting trend actually accelerated during the first three months of 2020. During that time, the biggest cable and satellite-television companies lost over two million customers.
That’s the worst decline on record for the industry. But how is this even possible? The problem is that many hotels, restaurants and bars had to close their doors due to Covid-19. Consequently, a large number of these establishments either paused their cable/satellite service or canceled it entirely.
Even when the patrons return, bars and restaurants might not immediately re-subscribe to cable television. These establishments often use cable-television services to broadcast sporting events. But with so many sporting events put on hold, there’s not much to broadcast.
Besides, it’s not only businesses that have been cutting the cord during the Covid-19 pandemic. Much like bars and restaurants, individuals sometimes use cable-television services as a way to view sporting events. Without that, and with money being tight lately, Netflix can be a cost-efficient alternative to cable television for individuals and families.
The Final Word on NFLX Stock
To put it simply, waiting for another company to dethrone Netflix will likely lead to frustration. NFLX stock has every reason to continue higher and the competition, as it currently stands, has a whole lot of catching up to do.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.