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Netflix has always been very misunderstood by the Wall Street analyst community.

In the USA almost all households have had a cable box at home with high quality programming, going as far back as the early nineties. At the time, streaming services weren’t even a viable option. 

Not an overnight sensation

Going public in 2002, Netflix grew slowly; hitting 4.2 million members by 2005. Worth less than $2 a share at the outset, the stock didn’t begin to truly take off until around 2009, when it had made its way to around $8 a share.

Of course, the rest is stock market history, as the shares have climbed astronomically, but not straight up. There have been highs and lows on the way; the all time high is $423,21 reached June 18th, 2018.

The 52 week range is high $393,52 reached March 3rd, 2020 and 52 week low $252,28 September 24th, 2019.

A game changer

The big tipping point was most definitely the introduction of streaming in 2007.

Creating a place where members could watch content instantly online changed the game. The reverberations from this move are still being felt today, as more programming is geared around the ability to watch it as you want to, rather than catching it at a specific time.

This is what consumers demand in 2020. 18 to 53 year olds want to choose when they watch their favorite series and movies. Also, they want to choose how many episodes they “binge” watch in a row.

Move to international services

In 2009 the company began partnering with electronics companies to get Netflix on smart TVs and gaming consoles – a brilliant move.

This process continued over the next few years, and the company decided to start serving international markets: Canada in 2010, Latin America in 2011 with Brazil the first to stream, then to Europe in 2012 with the UK and Ireland.

House of Cards – the series NOT the stock

House of Cards was a huge success and changed everything

In 2013. Netflix introduced its own original programming. Remember “House of Cards” and “Orange is the New Black”? By 2016, Netflix was accessible worldwide, and the company has continued to create more original content, while pressing to grow its membership.

No commercials ever

If the introduction of streaming was the tipping point, the genius of it all was how Netflix essentially used other content creators to beat them at their own game, without commercials.

By licensing their content to Netflix, networks essentially gave the company the tools it needed to steal their viewership. While it might have seemed like a good idea in the short term, one could argue that it was an act of self-sabotage by the networks over the long run.

What’s Happening in 2020? COVID-19?

Currently, Netflix is facing the advent of something that had not really been a problem in the past: competition. Key names in entertainment like Disney [NYSE:DIS] , AT&T [NYSE:T] with HBO, and Apple TV [NASDAQ:AAPL] have all entered the space.

However, rather than diluting Netflix market share, these competitors have served to increase the size of the streaming audience.

The real losers have been the cable industry “cutting the cord” and the old traditional TV companies: ABC, NBC, CBS and FOX.

Netflix has a great future in front of it, since it has almost 170 million subscribers worldwide and all the great directors, producers and actors want to use this distribution channel.

The recent outbreak of COVID-19 and the subsequent lockdowns in place are likely to drive more households to streaming services and Netflix remains well positioned with almost 170 million subscribers worldwide, attracting all the great directors, producers and actors that are keen to be involved with this distribution channel.

What’s more, Netflix does not broadcast any sports and won’t see any impact from the cancellation of big events.

Of course, the longer the current crisis continues, the less new content will be available. The question is whether Netflix has enough in the pipeline to outlast the current lockdown with minimal disruption to the business and whether subscribers will stay should this scenario play out.

We’ve seen the share price rally since mid March but it is still off its 2020 highs. With a broker consensus of Outperform, we feel this stock continues to be worth watching.

Data sourced from SharePad. The UK’s no.1 investment data & analysis software for Private Investors as voted for by FT/Investors Chronicle readers.  Discover the advantage at www.sharescope.co.uk/sharepad.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Raine Lahtinen

Raine Lahtinen

Raine Lahtinen has spent over 25 years in wealth management and trading. His active investment days started when he attended University of Miami 1987-1991 majoring in International Finance and Marketing. He has experienced the highs and lows of the stock markets since the 1987 crash, Dot.com bubble 2001-2002, the 2008 financial crisis and the current record breaking rally.

Since 1995, Raine has been based in Brussels, Belgium in Continental Europe as an international financial advisor and director of investments in various UK IFA firms. He has written many popular columns about markets and investments during his professional life. His passion is finding undervalued listed stocks. As a Finnish native he specializes on Nordic and US stocks.

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