As anyone who follows the technology sector knows, Netflix (NASDAQ:NFLX) is one of the most relevant companies of this century. With digitalization increasingly taking over the personal and now the professional space, NFLX is almost guaranteed to keep its relevance in the “Roaring 2020’s.” But for the intermediate term, NFLX stock is playing a new, unfamiliar role: a hedge against a possible recession.
Now, let me back up for a minute. I’m not suggesting that we’re going to have a prolonged downturn that counteracts everything I’m forecasting over the next ten years. Frankly, too many technological innovations are converging at once to deny the coming digitalization paradigm shift. But a temporary slowdown of economic activity is more than in the cards.
What has made the novel coronavirus unparalleled isn’t necessarily due to its severity. While devastating, humanity in its history has encountered worse. Rather, the wholesale moves by international governments to shut down their economies were previously unimaginable. Yet, it happened, and it will take time to unwind the damage.
Still, I’m confident that NFLX stock will remain resilient despite the challenges. Why? Simply, people need entertainment. Having a blow-off valve keeps everything in check.
However, many entertainment options are either gone or severely mitigated. For instance, movie theaters won’t show new releases until late July. Even then, we must wait to see how consumers will react. With rising coronavirus cases and more possibly on the way, the situation doesn’t look great for the box office. It does, though, offer upside potential for Netflix’s stock as consumers decide to stay in for their entertainment.
Here are three other reasons why investors should continue being bullish toward NFLX stock:
Some of the best investments have the most straightforward thesis. I believe that’s the case for Netflix.
Basically, the underlying platform is cheap. No matter what your subscription plan, from the cheapest at $9 to the most expensive at $16, you’re getting a steal. Furthermore, with a library of compelling content, you’re paying for programs that you actually watch.
Compare that to a traditional satellite TV subscription. Sure, it may tempt you with an initial low-cost monthly rate. But read the fine print. If you do, you’ll realize that the low entry point will eventually skyrocket like an adjustable-rate mortgage.
And who watches all the channels that a TV subscription provides? When you break down the cost per channel, you may soon realize that you’re paying for access that you simply don’t need — or in some cases, you absolutely don’t want.
Given our hectic lives nowadays, the on-demand platform that streaming inherently provides is relevant and superior.
NFLX Stock Is Shedding Previously Unfavorable ‘Comparables’
Naturally, traditional TV subscriptions have few counterarguments. But one of them involves live programming, especially news. If you want to know what’s going on in your community and throughout the world, it’s better to get that information now as opposed to finding out a day later after a news segment has been carefully edited.
But the demographic that cares about linear TV’s advantages is aging out. According to the Pew Research Center, those who primarily receive the news on TV are in the ages 50 to 64 bracket and 65 years and older. But for the younger groups, online sources and social media represent the most popular news outlets.
It’s even more problematic for linear TV with the 18 to 29 demo. Here, most young adults get their news from social media. While this doesn’t directly impact Netflix, it does take away a key advantage for traditional TV subs. And that’s ultimately good news for Netflix’s stock.
Netflix to Bank on a Different Culture
To make a big understatement, young millennials and the emerging Generation Z live in a completely different culture. What was once popular for prior generations just doesn’t resonate as deeply with younger people.
Take sports, for example. Although adults ages 18 to 24 watch professional sports, their rate of consumption is notably lower than older generations. Thus, if they’re not going to spend their entire weekends watching football, there’s no point in paying for an expensive TV subscription; hence, the indirect benefit to Netflix stock.
Also, this applies to celebrity fandom. Nowadays, young adults are just as likely to recognize a YouTube star as they are a Hollywood A-lister. Thus, the fresh content on Netflix appeals to younger audiences in a way that older adults may not get.
Which is just fine because Netflix has basically positioned itself as the new era content king. And that’s not something a temporary economic slowdown can impinge.
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.