At-home stocks are losing their dominance as lockdown restrictions lift but is Netflix still a buy as it moves into the gaming space?
It’s one of the most talked-about companies on the planet, it’s become a verb, and it brought us the cult phenomenon ‘Stranger Things’; but is that all Netflix (NASDAQ: NFLX) has to offer?
Before the economy reopened, there was a time when at-home stocks looked likely to rule the stock market for years to come; the Netflixs, Activision Blizzards (NASDAQ: ATVI), Pelotons (NASDAQ: PTON), and Zooms (NASDAQ: ZM).
However, as vaccines are rolled out across the globe, Netflix has seen its user additions fall. This slowdown was to be expected given the pandemic-fueled burst of growth it experienced, leading shareholders to wonder if the company has reached its peak. To combat these worries, Netflix has invested heavily in original content, non-scripted shows, and has recently unveiled its plans to break into the gaming space. With all that in mind, is Netflix stock a buy right now?
The bull case for Netflix
1. Business is boomin’
In case you haven’t noticed, everyone is streaming right now. Disney+ (NYSE: DIS) has more than 104 million subscribers, brand-agnostic Roku (NASDAQ: ROKU) is riding the wave, and reports have suggested that Apple (NASDAQ: AAPL) TV+ has surpassed 40 million users.
Netflix beats out all the rest with 209 million subscribers, having added 1.5 million more in Q1 — slightly ahead of its 1 million estimates. Netflix also revealed revenue growth to $7.3 billion, up 19% year-over-year, proving that its subscription model is still cashing checks month after month. Though the U.S. market is becoming saturated, there is still a whole wide world out there with 4.8 billion internet users, and with the video-streaming market expected to grow at a CAGR of 18.3% between 2019 and 2026, there is a lot of business still to be had.
2. First mover advantage
Never discount the importance of being the first on the scene. It’s worked for Coca-Cola (NYSE: KO), eBay (NASDAQ: EBAY), Kellogg (NYSE: K), and of course, Netflix. By becoming the first name in streaming, Netflix achieved immediate brand recognition, learned the ins and outs of the industry without the threat of competition, and made itself a necessity in people’s lives even when competition did arrive. All this has helped Netflix’s stock grow more than 42,000% (when taking stock splits into account) since it went public in 2002, and will help it remain dominant.
3. Revenue growth opportunities
In the streaming giant’s most recent earnings report, Netflix confirmed that it is breaking into gaming. While the costs for this venture will be high, it is a very exciting opportunity for the business.
Netflix is planning to use its large bank of intellectual property to create more engaging content for its users, similar to what Disney has done. Gaming should boost engagement and attract new users, all of which should boost profits. Another perk? Netflix is going to use its popular content to capture a slice of the $130 billion gaming industry pie.
The bear case for Netflix
1. Growing competition
Ok, so this might contradict my previous point, but there is no ignoring the increasing amounts of competitors in the streaming space. While Disney appears to be the biggest threat right now, Apple, Amazon, Comcast (NYSE: CMSCA), and more could easily up their game in the future and begin to truly chip away at Netflix’s market share.
2. “As good as it gets”
Netflix shareholders were concerned when the company failed to meet its quarterly earnings target this week for Q1. Some analysts believe that growth is likely going to continue to slow down once global economies reopen post-pandemic. With Netflix already capturing so many users, investors are left wondering if this is as good as it gets. One thing to remember is that streaming isn’t going anywhere and Netflix has invested heavily in original content, the platform has already spent $8 billion in the first half of 2021 alone, which has helped it win millions of loyal fans.
So, should I buy Netflix stock?
I am a shareholder in Netflix, Disney, and Apple and believe that it is well worth investing in as the dominant force in streaming. Netflix still has a lot of growth ahead of it, and with its ever-growing bank of award-winning content that could see it match Disney’s own portfolio in years to come. The push into gaming is really the icing on the cake and is something investors will be keeping a close eye on.
Quickfire round
How many subscribers does Netflix have?
As of July 2021, Netflix has roughly 209 million subscribers.
Does Netflix pay a dividend?
Netflix does not currently pay a dividend.
What was Netflix’s original stock price?
Netflix’s original 2002 IPO price was $15 per share.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.