Picture it – a Netflix-produced drama playing out in the spring of 2022. In the midst of the streaming wars, Netflix (NFLX) found itself under siege from industry heavyweights like Disney+ and established Hollywood studios.
Reed Hastings, the company’s co-founder, launched various initiatives to combat the onslaught – from cracking down on password sharing to contemplating advertising. Despite these efforts, Netflix’s stock took a hit, and naysayers from traditional Hollywood circles gloated, anticipating the company’s downfall.
However, a twist in the tale unfolded. Instead of facing a reckoning, this moment turned out to be a turning point triggering a strategic pivot that extended Netflix’s lead over its traditional entertainment counterparts, still grappling with losses despite hefty investments in streaming platforms.
The result? Netflix’s stock soared, climbing 85.7% over the last year. In contrast, Warner Bros Discovery (WBD) plummeted by 26.5%, Paramount Global (PARA) by 17.8%, Comcast (CMCSA) by 10%, and Walt Disney (DIS) managed only a 14.4% increase.
The Phenomenon of Netflix’s Success
The numbers speak volumes. Despite doubts on Wall Street surrounding the password crackdown, which commenced with trials in markets like Chile, Costa Rica, and Peru early in 2022, the move proved to be a masterstroke.
Contrary to expectations, the crackdown fueled Netflix’s growth for over a year, with the subscriber count reaching 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 welcomed a staggering 45 million paying subscribers. Little wonder its stock surged by over 114%, hitting new all-time highs recently.
Five years post the Disney+ launch that ignited the streaming wars, Netflix still reigns supreme in terms of subscribers and viewer engagement, commanding 8.4% of U.S. screen time as of July. In comparison, DIS (Disney+) captured 4.8%, with other Hollywood studio streaming services struggling below the 2% mark.
The Next Frontier for Netflix
Reflect on Netflix’s successful ventures post-2022. From pioneering an ad business, investing in video games, to enhancing live interactions around popular shows like Bridgerton and Stranger Things, Netflix displays innovation at its core. It’s even testing the waters with live sports coverage.
As the impact of the password crackdown stabilizes, Netflix’s next growth phase might stem from advertising. Though it’s a gradual process, the company joined forces with Microsoft (MSFT) for digital ad delivery and began publicizing its top 10 shows for targeted ad placements.
Yet, a new challenger emerges – Amazon (AMZN) – addressing Netflix through Prime Video and diving into streaming ads with competitive rates. Netflix swiftly pivoted from Microsoft, opting to build an in-house ad platform. Consequently, it views advertising as a significant revenue driver only by 2026.
Expanding into live event streaming, Netflix broadcasted two NFL games on Christmas Day and secured a mammoth $5 billion, 10-year deal for WWE’s Raw program, marking its largest venture into live sports programming. This strategic move promises added value for advertisers, as live events tend to yield higher ad returns than scripted content, especially with the NFL’s prime market status.
With Netflix at the helm of the streaming industry, boasting unrivaled market dominance, many foresee mid-teen revenue growth and improved margins on the horizon.
For investors eyeing a piece of the action, consider acquiring NFLX stock under $717, ideally below $700 during market corrections.
