Remember when the streaming wars hit fever pitch a year ago? It was a saga fit for a Netflix drama…
Back in the spring of 2022, amidst fierce competition from established Hollywood studios like Disney+, Netflix (NFLX) found itself under attack.
Co-founder Reed Hastings devised bold strategies to shield Netflix from this assault. From cracking down on password-sharing to contemplating advertising, Netflix was fighting on multiple fronts.
Despite these efforts, the stock stumbled. Critics from traditional studios gloated, anticipating Netflix’s downfall as the streaming giant faced unprecedented challenges.
However, the narrative took an unexpected turn. Far from facing a reckoning, this juncture marked a pivotal shift that widened Netflix’s lead over its struggling rivals in the entertainment industry, who had poured billions into streaming endeavors.
The true testament to this shift lies in the numbers. Netflix’s stock soared by a remarkable 85.7% over the past year. In stark contrast, competitors such as Warner Bros Discovery (WBD), Paramount Global (PARA), Comcast (CMCSA), and Disney (DIS) reported declines ranging from 10% to 26.5%.
Netflix’s Unparalleled Triumph
Netflix’s triumph is further underscored by its operational metrics.
Initially met with skepticism on Wall Street, the password crackdown, rolled out in selected markets in early 2022, proved to be a boon. The initiative turbocharged Netflix’s growth, propelling total subscribers to 277.6 million in the latest quarter, a 16.5% increase year-over-year.
Since implementing the password crackdown domestically in May 2023, Netflix has lured 45 million additional paying subscribers, driving its stock price up by over 114% and reaching record highs.
Today, nearly five years post the Disney+ launch that ignited the streaming tussle, Netflix not only leads in subscribers but also dominates screen time, commanding 8.4% of U.S. viewership in July. In comparison, Disney (DIS) managed a combined 4.8% through Disney+ and Hulu, while other studio-led streaming platforms lag behind.
Embarking on the Next Phase
Reflecting on Netflix’s evolution since 2022, the company’s strategic pivots include venturing into advertising, investing in video games, and expanding live experiences around popular shows like Bridgerton and Stranger Things.
As the growth surge from the password crackdown matures, Netflix’s next growth trajectory could stem from its advertising initiatives. Collaborations with Microsoft in the ad space have been promising, despite Amazon’s aggressive foray into the streaming advertising realm, undercutting ad rates.
Responding to market dynamics, Netflix redirected its advertising strategy, opting to build an in-house platform rather than continuing its collaboration with Microsoft. The company acknowledges that advertising won’t significantly drive revenue until 2026.
Additionally, Netflix is delving into live event streaming, having broadcasted NFL games on Christmas Day and sealed a monumental $5 billion deal with World Wrestling Entertainment. These endeavours, especially within the live sports domain, are poised to augment the advertising segment.
As the foremost figure in video streaming, Netflix holds the potential to achieve mid-teen revenue growth and expand its operating margins, leveraging its strategic moves into live events.
If considering an investment, experts suggest acquiring NFLX stock below $717, ideally under $700 during market retrenchment.
