Netflix Inc (NASDAQ: NFLX) shares fell 4% during the NASDAQ’s sell-off on Monday. Here are two reasons to look at — and possible like — Netflix shares.
About Netflix
Netflix is the world’s leading online movie-streaming service, with nearly 150 million subscribers worldwide and a subscriber year-on-year growth rate of around 25%. Recently, Apple Inc. (NASDAQ: AAPL) and Walt Disney Co (NYSE: DIS) announced they will be joining the online streaming space and will provide fresh competition for Netflix.
The Negatives
There are a couple of reasons investors might shy away from a company like Netflix.
Competition: Aside from the recent additions to the industry of Apple and Disney, there are plenty of other big players with streaming services that compete for market share, such as Amazon Inc (NASDAQ: MZN) with Amazon Prime and Nine Entertainment Co Holdings Ltd (ASX: NEC) with Stan. The number of new players seems to be increasing.
Piracy: Netflix highlights piracy as one of the biggest risks to its business, with some platforms offering virtually all content for free. Although these operations are illegal, Netflix is still forced to compete, and they suggest in their annual report that piracy platforms could take significant market share.
Content costs: Netflix’s business model includes paying for licences to stream content and producing their own content. These costs are significant and largely fixed in nature, so any reduction in revenue could adversely affect margins. In other words, revenue may fluctuate in the short-term while costs remain fixed.
Why I Still Like Netflix Stock
Despite some of the negatives, there are still plenty of reasons to like Netflix.
Revenue growth: While content costs do pose a risk, revenue growth has been high and consistent for some time. According to the most recent quarterly report, year-on-year revenue growth was around 22% and is expected to increase to 26% next quarter.
Brand power: Netflix is the leading movie streaming service by some margin, and its market share continues to grow. Q1 saw year-on-year growth of 25.2% in Global Streaming Paid Memberships and 9.6 million new paying subscribers joined the platform.
With revenue growth higher than most businesses and the significant brand power and market share Netflix possesses, I don’t think the increase in competition should be keeping investors awake at night.
For growth shares closer to home, check out the two ASX technology companies in the free report below.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.
