Shares of Netflix (NASDAQ:NFLX) are on the move this morning as investors react to the streaming platform’s move into video games. NFLX stock gained as much as 2.8% in premarket trading.
The stock had been up 1.3% this year through Wednesday’s close. By this morning, NFLX was the top trending ticker on Yahoo! Finance.
Losing no time as its millions of subscribers emerge from pandemic lockdown, the company is planning an expansion into video games and has hired a former Electronic Arts (NASDAQ:EA) and Facebook (NASDAQ:FB) executive, Mike Verdu, as vice president of game development, Bloomberg reported.
The move into video games has been the stuff of rumors for several months, including a report by The Information, which claimed knowledge of Netflix’s ongoing plans to recruit an executive to oversee an expansion into video games.
Netflix plans to offer video games within the next year, according to reports. The games will be a new content or programming category, similar to what the streaming service did with documentaries and stand-up comedy features. According to Bloomberg, the company doesn’t currently plan to charge extra for the content.
NFLX Stock Growth Narrative Needs Games
Netflix’ secret sauce is its algorithm. It can tell subscribers what they want to watch next based on past viewing history. This means Netflix doesn’t have to guess what to buy. It can cut to the chase.
But the growth narrative for NFLX stock has started to lose its luster, with video-streaming becoming an increasingly crowded world to do business. Plus, its growth factor is stretching to its limits, thanks to the pandemic. (Netflix experienced accelerated growth during this period, but it’s tapering off.)
The growth of video games hasn’t been lost on the company. Adding game streaming could potentially open up games to a massive audience at no extra charge. Yet they won’t be first, as Apple’s (NASDAQ:AAPL) Arcade service has a well-established beachhead in the space.
If for whatever reason you doubt the opportunity here, consider that, post-pandemic, “videogames are a bigger industry than movies and North American sports combined,” as InvestorPlace Web Editor Robert Waldo wrote last month.
Here’s a quick look at some other important video-game industry details:
- As of 2020, there’s an estimated 2.8 billion gamers in the world, served by a roster of games makers, such as EA and Take-Two Interactive (NASDAQ:TTWO)
- The number of gamers might diminish as we return to normal, but chances are that many will retain the hobby, especially with the release of new gaming consoles from Microsoft (NASDAQ:MSFT) and Sony (NYSE:SONY).
- Mobile gaming comprises “58% of the total games market.”
The gaming industry has been growing exponentially over the past decade. Although its growth might not accelerate again like it did during the pandemic, it’s definitely in a good spot. Clearly, there’s a massive audience to tap into here.
On the date of publication, Robert Lakin did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
InvestorPlace contributor Robert Lakin is a veteran financial writer and editor, including previous stints with Bloomberg News and as a buyside equity research editor. His Substack newsletter, TLV Strategist, covers the Israel business scene.