3 reasons why no one is catching up to Netflix now
Wednesday was a great day for Netflix (NASDAQ: NFLX). Shares of the company behind the first premium video service reached a record level after releasing brilliant financial results.
The 17% rise in the stock in a single day is special, but there is a method to joy. Netflix is running away with this market and the chances of someone catching up with it, even Disney (NYSE: DIS)with its meteoric rise in this niche – become clearer with each passing quarter. Let’s go over a few reasons why no one is going to gain traction on Netflix right now.
1. Financial independence is huge
Netflix doesn’t want one of the most important nuggets in this week’s letter to shareholders to go unnoticed. A comment about his financial independence was buried a bit in the copy, but this is the only part of the 11-page letter in bold:
We no longer need to raise external funding for our day-to-day operations.
The juicy reveal comes after Netflix underlined in the letter that it is poised to be a lasting positive in terms of free cash flow. It now expects to strike a balance on that front this new year, despite significant spending on content and growing its global audience. Netflix is so comfortable with its liquidity that it is exploring ongoing share buybacks.
Financial independence is a big deal. Right now, that may not seem like a game-changer for Netflix. After all, Wall Street’s high rates and interest rates are low, making it easier to raise external equity or debt financing. But it won’t stay that way. Netflix also competes with media actions with deep content vaults and tech giants with huge arsenals of cash. Being in charge of your own financial destiny is worth being bold.
2. Content is king
Disney shares hit new highs last month – despite underperforming so many of its segments – in large part due to its successful Disney + media event. Disney took just 13 months to reach 86.8 million subscribers, but those accounts pay less than half of what Netflix collects.
Disney enjoys an unrivaled catalog of intellectual property, but Disney + has really only had one successful series in The Mandalorian. Disney will exploit the well of its monster properties. He announced his intention to develop 10 Star wars and 10 Marvel series over the next few years, but even that won’t be enough to catch up with Netflix.
Netflix is the new hit factory. He owns the world. It aired 9 of the 10 most wanted TV shows in the world last year, and now it puts more weight on its feature films. Netflix will release at least one original movie every week this year. There will be stinks in there, but given its huge audience advantage, even a mediocre movie or series becomes a relevant pop culture release.
3. Make monetization mountains out of molehills
Netflix is increasing its audience despite a deluge of new platforms and price increases of its own. Netflix has increased its monthly rate five times over the past seven years – an increase of 75% during that time – and its paying members have more than quadrupled.
Only HBO Max commands higher monthly coverage fees among major streaming services. Will a rival ever make $ 25 billion a year like Netflix now does? What is amazing is that this $ 25 billion comes mainly from subscription fees. Netflix has been largely reluctant to profit from its audience through advertising. It hasn’t used its pole position with its 203.7 million subscribers to push related products and services. In terms of revenue flow, these intact levers are a Virgin river, If you want. Netflix is really only scratching the surface.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.