Prediction: In 5 Years, This Will Be Netflix's Biggest Rival

Key Points

Netflix (NASDAQ: NFLX) has been evolving its business over the years by adding live sports, podcasts, and even games. Its subscriptions now offer a wider range of entertainment options, and they’ve proven superior to other streaming services, enabling the business to grow while also commanding strong profit margins.

But its largest rivalry may still be in its early stages, and it’s one even my kids see coming. Netflix may be on a collision course with YouTube. Here’s why I think it’ll be far and away its biggest rival in five years.

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Image source: Netflix.

Netflix has been adding content from popular creators

In what appears to be a more concerted effort to attract traffic from YouTube, which is owned by Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), Netflix has been adding content from creators such as Ms. Rachel, Mark Rober, and many others. The first season of Ms. Rachel generated 37 million views in the first six months of the year, according to Netflix’s data, and ranked as the ninth-most-watched show during that period.

Not only is bringing in more content creators on Netflix’s platform a more cost-effective option for the streaming company than producing its own shows, but it can also quickly add a wider range of content to its platform to drive more growth. Between bringing on more creators and adding podcasts, Netflix may already be preparing for a much bigger battle brewing ahead with YouTube.

The challenge will be that, since YouTube is accessible without a paid subscription, Netflix will need to convince viewers that comparable content is worth paying for. One option, however, could be that the streaming company drastically changes its strategy and, like YouTube, begins to offer content without a subscription, relying entirely on ads.

This could be Netflix’s biggest challenge yet

YouTube has a huge advantage given the sheer breadth and depth of its offerings. Not only is there a wide range of content available on its platform, but it’s also more convenient for people who don’t want to watch long shows or movies but still want something longer than just a short. And with Netflix raising its prices over the years, it may not offer the same enticing value it once did.

Netflix may not be doomed, but it may be facing its most formidable rival yet in YouTube. Alphabet is a tech giant with the deep pockets and resources necessary to back YouTube’s continued growth, as it has also been expanding into live sports.

This year, Netflix’s stock is struggling, and although I still think it can do well in the long run, investors are right to be at least somewhat worried about its future.

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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Netflix. The Motley Fool has a disclosure policy.