3 Big Reasons to Buy Netflix Stock Now

RSS
Follow by Email
Facebook
Facebook
Twitter
Visit Us
Follow Me

This article was originally published on this site

t’s been a turbulent summer for many of the top tech operators. Yet, this has not mattered much to Netflix, Inc. (NASDAQ:NFLX). Then again, the company did pull off a stellar quarter, posting robust subscriber gains. Since early June, NFLX stock is up 14% to $185.68.

But there are still many skeptics. The company continues to burn large amounts of cash and the competitive environment has been getting more intense. Netflix’s rivals include Hulu, CBS Corporation(NYSE:CBS), Alphabet Inc (NASDAQ:GOOGL), Amazon.com, Inc.(NASDAQ:AMZN) and Time Warner Inc (NYSE:TWX) among others.

Oh, yes, and NFLX’s valuation is a nagging issue too, with its forward price-to-earnings ratio of 92. To put this into perspective, Facebook, Inc. (NASDAQ:FB) trades at 27 times projected earnings and GOOGL sports a forward P/E ratio of 23.

Now, while all these are legitimate concerns, I still think the bull case is intact. To see why, let’s take a look at three important factors:

NFLX Stock Advantage #1: User Base

Note that NFLX is the leading internet television network, with 104 million subscribers across 190 countries. Every day, the company’s members watch over 125 million hours of streaming content.

What’s more, there is much room for continued growth, especially in foreign markets. Consider the following commentary from Wall Street analysts:

  • Guggenheim’s Michael Morris believes that — during the next two years — the growth ramp in Asia, the Middle East and Africa will be faster than for markets in Europe and Latin America.
  • According to Piper Jaffray’s Michael Olson, Netflix “is well positioned to have over 100 million international subscribers by 2020, along with ongoing operating margin expansion as the company spreads content and marketing spend over a growing installed base.”
  • Based on a survey from RBC’s Mark Mahaney, there is a high level of customer satisfaction in foreign markets. Over 80% of the respondents in the UK and Brazil indicated they were “extremely” or “very” satisfied with the NFLX service

Besides, the company has been aggressive with partnership deals. Just look at the arrangement with T-Mobile US Inc (NASDAQ:TMUS), which will provide the NFLX service to customers with two or more lines on unlimited plans.

NFLX Stock Advantage #2: Content

It was back in 2012 that Netflix began its efforts to create premium content. As should be no surprise, there were many doubters. After all, the entertainment business is dicey because of the fickleness of viewers. Yet, NFLX had a big advantage: a sophisticated infrastructure that provides in-depth analytics.

Well, of course, the bold strategy has paid off in a big way, as seen with runaway hits like “Orange Is the New Black” and “House of Cards”. The premium content has not only been a key driver of user engagement, but has also allowed NFLX to wean itself off of licensing content from giants like Walt Disney Co (NYSE:DIS).

And the success has made it easier to attract top-notch talent. For example, NFLX recently entered a deal with Shonda Rhimes, who is the mastermind of hit shows like “Grey’s Anatomy” and “Scandal”.

NFLX Stock Advantage #3: Reed Hastings

NFLX CEO Reed Hastings is definitely one of the top leaders in the tech world. He has shown that he can take on tough rivals, as seen in the fight against Blockbuster Video. But Hastings also has demonstrated that he is not afraid to make gutsy decisions, such as when he launched the video streaming service (back in 2007), which involved heavy investments and the threat of cannibalization of the DVD-rental-by-mail business.

Like AMZN’s CEO Jeff Bezos, Hastings takes a long-term view of things and also has an obsessive focus on the customer. So, it should be no surprise that Hastings continues to double-down on his business. To this end, he plans to spend a whopping $6 billion on content this year and $1 billion in marketing. There will also be aggressive expenditures on R&D.

Then again, Hastings has a big vision for his company. If anything, NFLX may still be in the early phases. As noted on the company’s website: “Over the following decades, internet TV will replace linear, and we hope to keep leading by offering an amazing entertainment experience.”

Tom Taulli runs the InvestorPlace blog IPO Playbook and is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short SellingFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.