What You Need To Know
Netflix (NASDAQ: NFLX) experienced a remarkable surge in subscriber numbers in the final quarter of last year, marking its most impressive growth since 2020. This surge, attributed to a strict crackdown on password sharing, led to an influx of over 13.1 million new subscriptions.
The streaming giant, embracing this momentum, confidently plans to increase its prices, seeing this period as a return to its standard business operations.
Interestingly, a significant portion of these new subscribers chose Netflix's most economical plan, which includes advertisements. This decision reflects a notable shift in strategy for Netflix, which had historically opposed integrating ads into its service. However, faced with a decline in subscribers and profits in early 2022, Netflix pivoted towards advertising and other innovative strategies, such as hosting live events, to rejuvenate its viewer base and revenue.
Meanwhile, in a bold move, Netflix secured a $5 billion deal to stream WWE Raw exclusively, intensifying the competition with rivals like Amazon (NASDAQ: AMZN), who are also expanding their live event offerings.
Analysts applaud these strategies, seeing them as a testament to Netflix's dominant position in the streaming industry. Despite the introduction of an ad-supported plan, Netflix remains cautious about the immediate financial impact of this model. However, the potential for increased earnings per account through a combination of ads and subscriptions is stirring excitement among investors.
The company's strategy, coupled with a strong content lineup and industry recognition, has led to a substantial increase in revenue and profits, firmly solidifying Netflix's position in the streaming market.
Why This Is Important for Retail Investors
Growth Potential: The substantial increase in Netflix's subscriber base, particularly following the crackdown on password sharing and the introduction of an ad-supported plan, highlights the company's strong growth potential. Retail investors like to see companies with a clear trajectory for expansion and profitability.
Innovative Strategies: Netflix's willingness to adapt and innovate, evidenced by its venture into advertising and exclusive content deals like the WWE Raw streaming rights, demonstrates its commitment to staying ahead in the competitive streaming industry. This forward-thinking approach can assure investors of the company's long-term viability and potential for market leadership.
Revenue Diversification: The integration of advertising into its revenue model opens up new streams of income for Netflix, reducing its reliance on subscription fees alone. This diversification makes the company financially more robust, which is an attractive quality for investors looking for stable and resilient investment opportunities.
Strong Content Portfolio: Netflix's continued investment in high-quality, diverse content, as seen with its Oscar nominations and exclusive deals, strengthens its market position and brand value. For investors, a strong content portfolio suggests a sustainable subscriber base and long-term customer engagement.
Industry Recognition and Performance: The company's substantial revenue and profit growth, coupled with industry recognition and awards, underline its operational success and strong management. For retail investors, investing in a company that demonstrates consistent performance and industry acclaim can offer a sense of security and confidence in their investment choices.
How Can You Use This Information?
Here are some of the investing ideas that can be explored using this information:
Netflix's aggressive content acquisition, such as the $5 billion deal to stream WWE Raw, indicates its commitment to growth and expansion in the streaming sector.
The increase in subscriber numbers, especially after the crackdown on password sharing and the introduction of an ad-supported plan, suggests a potential for sustained growth in revenue and user base.
Investors looking for growth stocks might find Netflix appealing due to its consistent expansion and ability to innovate and capture new market segments.
Growth investing focuses on stocks of companies expected to grow at an above-average rate compared to other stocks in the market; learn more in our article titled 'What is Growth Investing?'.
Netflix's stock might attract momentum investors, especially if the market reacts positively to the recent subscriber growth, strategic partnerships, and revenue increases.
The company's ability to exceed analyst expectations and its strategic moves to expand and diversify its revenue streams can create a positive trend in stock price, which momentum investors typically seek.
Momentum investing rides the wave of existing market trends by buying assets that have shown an upward price trend and selling those in a downtrend.
Investors interested in streaming, digital entertainment, or tech innovation might see Netflix as a key player within these themes. Its continuous investment in content and technology aligns with broader trends in digital consumption, making it a potential candidate for thematic investment portfolios.
Thematic investing selects assets based on projected trends or themes believed to offer growth opportunities.
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Many investors prefer to invest in stocks via an exchange-traded fund for ease and reduced risk. In fact, as of the end of 2023, passive investment products surpassed actively managed ones in total assets held, marking a significant milestone in investment trends. Some of the most popular ETFs include the following:
Large-Caps: Vanguard Mega Cap ETF (MGC)
Mid-Caps: Vanguard Mid-Cap ETF (VO)
Small-Caps: Vanguard Small-Cap ETF (VB)
Growth: iShares Core S&P U.S. Growth ETF (IUSG)
Value: iShares Core S&P US Value ETF (IUSV)