Engulfed in the fierce battleground of the streaming wars, Netflix found itself facing down the barrels in the spring of 2022.
The newcomer, Netflix (NFLX), endured relentless fire from industry giants like Disney+ and established Hollywood studios.
In a tactical move, co-founder Reed Hastings implemented bold strategies to combat the fierce competition. Measures included cracking down on password-sharing and even considering advertising as a defensive tactic.
Despite Netflix’s proactive stance, its stock took a significant nosedive. The established Hollywood stalwarts reveled, anticipating the downfall they had long predicted for the disruptor.
Yet, the unfolding narrative took an unexpected turn. Rather than facing a reckoning, this juncture marked the genesis of a transformative shift that bolstered Netflix, expanding its lead over its struggling traditional rivals, who had poured billions into the volatile streaming market.
The evidence of this strategic prowess is glaring in the financial markets. Over the past year, Netflix’s stock has ascended by a remarkable 85.7%. In stark contrast, Warner Bros Discovery (WBD) plummeted by 26.5%, Paramount Global (PARA) by 17.8%, Comcast (CMCSA) by 10%, and the behemoth Walt Disney (DIS) saw a mere 14.4% uptick.
The Meteoric Rise of Netflix
Evidence of Netflix’s dominance is not limited to stock performance.
Initial skepticism shrouded Wall Street regarding the password crackdown initiated by Netflix in early 2022, with controlled trials in markets like Chile, Costa Rica, and Peru.
Contrary to forecasts of subscriber erosion, the crackdown acted as a growth catalyst for Netflix, fueling a surge that saw total subscribers hit 277.6 million in the latest quarter, marking a robust 16.5% annual increase.
Since enforcing the password crackdown domestically in May 2023, Netflix has witnessed a staggering increment of 45 million paying subscribers! Evidently, the market responded favorably, propelling its stock price to soar by over 114% and attain new historic highs.
Presently, nearly half a decade post the onset of the streaming wars ignited by Disney+, Netflix remains unchallenged in both subscriber count and viewer engagement. In July, it commanded 8.4% of U.S. screen time, overshadowing DIS, which managed only 4.8% across its Disney+ and Hulu platforms combined.
In stark contrast, other industry players from the Hollywood brigade – including Warner Bros Discovery Max, Comcast Peacock, and Paramount+ – struggled with less than 2% share of viewer engagement.
Decrypting Netflix’s Future Strategy
Reflecting upon Netflix’s series of successful transformations since 2022, it is evident that the company has diversified its revenue streams through venturing into multiple initiatives.
From pioneering an advertising arm to venturing into video games, expanding “experiences” around hit shows like Bridgerton and Squid Game, to dabbling in live sports, Netflix’s entrepreneurial spirit has been relentless.
The zenith achieved through the password-sharing crackdown is likely to plateau soon. Therefore, the next growth catalyst for Netflix could emanate from its advertising venture.
However, the path to reaping substantial advertising revenues is laden with challenges. Netflix’s nemesis in this domain is not the Hollywood bigwigs but rather Amazon (AMZN) through its Prime Video service. Amazon, renowned for its aggressive tactics, has ventured into streaming advertising, undercutting Netflix’s rates significantly.
Consequently, Netflix elected to veer off its partnership with Microsoft and embark on developing an in-house advertising platform. This shift underscores Netflix’s projection that advertising will not constitute a primary revenue driver until 2026.
In tandem with its advertising thrust, Netflix is strategically pivoting towards live event streaming. Noteworthy engagements include broadcasting two NFL games on Christmas Day – Steelers versus Chiefs and Ravens versus Texans.
Netflix’s landmark $5 billion, 10-year agreement with World Wrestling Entertainment for its weekly Raw program signals the company’s foray into live event sports programming. This strategic move is poised to fortify Netflix’s advertising business, given the higher value live events offer to advertisers compared to scripted content. Notably, the NFL commands paramount value in the U.S. sports broadcast ecosystem.
With its unwavering market dominance in the video streaming arena, Netflix is poised to drive mid-teen revenue growth with expanded operating margins.
Strategists recommend embracing NFLX stock at or below $717, ideally below $700 during market downturns.
