Posted in Trading on March 10th, 2017
The following article covers trading financial securities, such as stocks. The world of trading often comes with rises and declines of securities, and most things do not rise or fall in a straight line. By the time this article is published, circumstances involving what we mention may have changed. Often, changes in securities can be to the detriment to the traders – seldom is it beneficial. A person should only trade with money that they’re willing to lose because losses are guaranteed. By reading this post, you agree that you’ve read our disclosure.
Back in January, I’ve written about the pessimism in investing in Netflix (NFLX). Although there have been bigger buyouts in the past, I do not believe that NFLX can be a target for a buyout by another company. Many have speculated that Disney can be a potential suitor. There are probably many other speculative suitors, including some tech giants with very large cash reserves. However, my thoughts are the opposite. There is a lot of potential for Netflix to progress to the next level even in the midst of adverse conditions.
Netflix has many competitors in the entertainment space. Besides the major television networks, there are hundreds of cable channels. These channels are provided by many multichannel video programming distributors (MVPDs). These MVPDs can be wired or wireless. Competition is fierce.
The main competitor is Amazon Video. Amazon is a much bigger company, but video represents are smaller portion of Amazon’s revenue. It is harder to compare the financials because content is available to Amazon Prime members, combined with other free benefits. Amazon has an advantage by being able to throw large sums of money on content. To compete, Netflix continually provides more original content. Winning many awards every year, its content draws more subscribers. Recently, YouTube has announced streaming channels to be available in the near future. Now, DirecTV no longer requires a satellite dish to subscribe to its streaming channels. It can be streamed through an app in Apple TV box or other streaming set-top boxes. Yahoo and Twitter have live-streamed NFL games. Facebook is inking deals to live-stream sporting events. Competition is getting more fierce.
Netflix has over 100 million subscribers worldwide. As Netflix adds more subscribers every quarter, the cable companies are losing viewers. As “cord-cutting” becomes more popular, broadband is more important than having hundreds of channels. Also, during peak times, Netflix consumers use more than 33% of the overall broadband usage. The close second is YouTube, and a distant third is Amazon Video. Netflix is willing to spend a lot of its cash for content. Amazon Video has a similar strategy, where both companies have made waves at Sundance Film Festivals. Distribution deals for content are more competitive and have higher contract prices, due to these companies. Netflix has an intuitive user interface, which seems easier than any other platform.
Netflix made significant deals with Disney. Besides producing original Marvel Universe content, they have signed a production deal with the most popular star in India. Bollywood produces more movies per year than Hollywood. Even though the overall revenue market is smaller, there are more audiences in India, 3 times more.
Netflix is able to pivot its business model fairly quickly. It started out as a DVD distribution company, mailing DVD rentals through the mail. Hindsight has proven that Blockbuster Video made a mistake by not buying Netflix for $50 million dollars. However, I am not sure if Netflix would have developed into the company today if it was under Blockbuster. Afterwards, Netflix identified streaming as the future and invested in streaming technology. Now, I believe Netflix has pivoted to add content as a key component in its business strategy.
Here’s where I think Netflix is headed. This is pure speculation, but it is fun to imagine what Netflix can do.
Whatever the direction Netflix takes, I hope it will be an interesting one.