When it comes to resilience, Netflix (NASDAQ: NFLX) has an uncanny ability to silence the skeptics and defy the odds. Remember the Qwikster fiasco of 2011, where the company’s attempt to segregate its DVD and streaming services backfired? Fast forward to today, and Netflix has not only bounced back from setbacks but has soared to new stock price heights.
After weathering a more than 70% drop during the pandemic fallout, Netflix has reclaimed most of its lost ground. Subscribers briefly dipped into negative territory in 2022, prompting the streaming giant to pivot with new strategies that are now yielding substantial returns.
The recently released first-quarter earnings report is a testament to Netflix’s resurgence, boasting record-breaking operating margins, the speediest revenue growth since 2021, and subscriber additions that surpassed expectations. Here’s a closer look at what makes Netflix a prime investment opportunity.
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1. Strategic Shifts Reap Rewards
At the onset of 2022, Netflix faced adversity as the pandemic-induced surge waned, leading to negative subscriber growth. With a saturated streaming market posing challenges, Netflix responded with agility. The introduction of an ad-supported tier catered to cost-conscious viewers and provided advertisers a platform to engage with Netflix’s vast subscriber base.
In the first quarter, Netflix reported a 65% uptick in ad-supported memberships, with 40% of new subscribers opting for this tier. Co-CEO Greg Peters indicated a long-term vision of achieving equal monetization from ad-supported and ad-free models, showcasing the transformative potential of advertising.
Pioneering features like paid sharing drove a surge in new subscriptions, propelling a remarkable 9.3 million subscriber increase and lifting the operating margin to a record-high 28.1%.
2. Outpacing the Competition
In 2022, Netflix’s stock suffered a blow amidst concerns of heightened competition in the streaming landscape, with industry heavyweights like Disney, Apple, Warner Bros Discovery, Comcast, and Paramount Global entering the fray. Despite this, Netflix’s profitability surged ahead, leaving rivals in the dust.
With a colossal subscriber base now exceeding 270 million, Netflix enjoys the scale to invest expansively in diverse content, catering to global audiences with content in multiple languages. Its early-mover advantage and singular focus on streaming have shielded it from the challenges faced by legacy media players pivoting to digital platforms.
Netflix’s unwavering commitment to streaming has not only bolstered its current position but also positioned it as a frontrunner in a rapidly evolving landscape.
3. Misunderstood Potential
Despite surpassing earnings forecasts and providing robust guidance for the second quarter, Netflix’s stock witnessed an 8% dip post-release. The decision to discontinue quarterly subscriber disclosures might disappoint Wall Street, but it underscores the company’s evolution.
Netflix’s robust competitive advantages, coupled with anticipated earnings revisions post-Q1, point towards a bullish outlook. With vast untapped audiences globally and a burgeoning ad revenue stream, Netflix stands primed to sustain its profit trajectory and boost its stock value.
*Stock Advisor returns as of April 15, 2024