Netflix stock was the best performing in the S&P 500 both in 2013 and 2015. But 2016 has brought a tumbling market and a wave of “risk-off” trading — which is trader speak for, “sell everything that went up a lot.” …here’s the two-year Netflix stock chart showing NFLX tumble to recent lows:
We can see that Netflix stock is down from an all-time high of $133 to now in the low $80’s. We can also see, roughly speaking, some possible areas of support should the stock fall further.
But the real question has become: Is Now The Time to Buy Netflix Stock?
In order to answer that question, we don’t need a stock price, we need to fully understand what’s going on with the firm. Stock prices fluctuate wildly, but businsses rarely do.
THE STORY
Earlier this year at the Consumer Electronics Show (CES), Netflix CEO Reed Hastings announced significantly expanded reach to 190 countries, making its Internet TV service available in 130 new markets including India — but not China. “Today you are witnessing the birth of a new global Internet TV network.”
Here’s a great chart from Statsita that demonstrates the Netflix reach as of right now:
The bright green areas are the newest additions to the Netflix family of nations.
Netflix has become a colossal success because it has broken all of technology as a distributor, forever changing the way we watch TV and movies. It has won the war, and fended off some very powerful companies in doing so, making them look foolish in the process.
But, Netflix now relies more on original (exclusive) content than it used to as it has been dropping a substantial amount of other content. That allows for a new revenue source on the one hand (syndication of original content), but also means a totally new business line.
Netflix has also found its first competitor that is born of technology rather than media, and that’s Amazon.com.
CONTENT
Netflix’s original content earned more golden globe nominations than any other network.
This is not just astonishing, it means that the company’s conversion from content distributor to content creator and distributor is working on a scale simply no one in the world (even Netflix) could have imagined.
IMPACT
A content distributor without original content has a tenuous relationship with content providers. On the one hand Netflix has literally saved TV shows that were well on their way off the air until binge streaming took hold.
But, those same content creators didn’t like that reliance and have started to create their own outlets to bypass Netflix. This includes DVD service from cable companies, the creation of HULU and of course, straight down the middle on demand programming from the cable providers.
But now that Netflix has created high demand, high quality original content, my goodness, it has turned into its very own border-less cable bundler. And, the more subscribers it gets due to its own content, the greater power it holds over the other content providers — more eyeballs means more power, period.
Here’s a chart of the company’s all-time revenue chart:
Revenue is up 23% year-over-year and has hit an all-time high essentially every time the company reports earnings. But, recent news has shown us that domestic demand has slowed considerably. Here’s the chart from 2011 through 2015:
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