Netflix - Stocks

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Netflix is one of the most popular brands and one of the fastest growing companies in digital media streaming. Netflix is an American multinational company that excels in media streaming through internet, and Netflix has also become a strong and resourceful movie production company. The core business of Netflix is to offer ads-free video streaming content based on the subscription model.

Netflix is headquartered in Los Gatos, California, USA. The company generates its revenues through monthly subscriptions by domestic members in US and international members. Netflix has offices in the US, UK, Brazil, France, Netherlands, Japan, and South Korea.

Netflix has nearly 193 million paid subscribers in over 190 countries, which makes it the largest provider of entertainment based according to subscriber base. Only in the US, Netflix has almost 73 million subscribers. Netflix is a member of the prestigious Motion Pictures Association (MPA) that includes the world’s biggest movie production houses, such as Universal Pictures, Sony Pictures, Paramount Pictures, Warner Bros., and Walt Disney Studios.

Netflix’s business has grown so quickly that it is considered among the five most valuable technology companies of the US according to market capitalization and forms the term ‘FAANG’ that includes ‘Facebook, Apple, Amazon, Netflix, and Google’. Of all the five companies, the stock value of Netflix has risen the most with 450% growth.

Netflix is worth more than 770 times, then what its initial public offering (IPO) was. The initial stock value of Netflix was $15, but now it is touching nearly $500, which shows the growth and progress of the company. The current market value of Netflix is almost $220 billion, which is even more than Gross Domestic Product (GDP) of most countries such as New Zealand and Greece.

Netflix was ranked 197 on the Forbes Fortune 500 list in 2018. Netflix comes among the top ten internet and technology company. Netflix spends more than $12 billion on its original media content, whether it is movies or TV series. Netflix has more than 850 original titles in its media library, which also accounts for 80% of the company’s revenue. Netflix takes up to 26% of the global streaming traffic and offers customer support in over 26 languages to help improve user interface and customer experience.

The Netflix Original content is quite popular among the global audience and avid movie critics. The original TV series of Netflix is quite successful and allowed Netflix to get a total of 112 Emmy Nominations until 2018. Considering the past year, Netflix has launched many popular TV series and movies. The TV series includes new season of ‘Stranger Things’, ‘Orange Is the New Black’, ‘Money Heist’, and the ‘The Umbrella Academy’, while the movies include ‘The Irishman’, ‘Extraction’, ‘Bird Box’, ‘6 Underground’, ‘The Old Guard’, and ‘Spenser Confidential’.

History of Netflix

Netflix was formed on August 29, 1997, by Marc Randolph and Reed Hastings in California. In 1998, Netflix started to offer DVD rentals to customers. The sales were, however, stopped in 1999, and Group Arnault invested almost $30 million, and the ‘subscription plan’ is launched.

In 2000, Netflix made a breakthrough and reached revenue-sharing deals with Columbia Film Studios and Warner Brothers. In 2001, Netflix did a partnership with Best Buy that allows Netflix exposure to 1800 stores. On May 23, 2002, Netflix started trading publicly on the NASDAQ by offering 5.5 million shares, and share price was set at $15, and the company can raise $82.5 million. The first trading day is closed at $$1675. Also in 2002, the name of the company is changed to ‘Netflix Inc.’

In 2003, the subscriber base of Netflix touched 1 million in the first quarter. In 2005, Netflix had 5 million subscribers. In 2007, Netflix launched Video Streaming services. In 2010, Netflix debuted internationally by offering its services in Canada. By 2011, Netflix was available in South America and the Caribbean. In 2013, Netflix enters the production industry, and the three television series are launched called ‘House of Cards, Orange Is the New Black, and Hemlock Grave’, which were all are massive success in the US and also globally.

In 2016, Netflix went worldwide by offering its services in over 130 countries, and in following year Netflix passed 100 million subscribers. Netflix has grown exponentially as the company had only 35 million subscribers in 2013, but now, in 2020, more than 190 million people have subscribed to Netflix media streaming services.

Netflix has already progressed and achieved the wide success that the company has not been interested in mergers and acquisitions; however, Netflix made one acquisition of Millarworld, a comic book publishing company in 2017 that can help Netflix develop series and movies on super heroes.

Since 2013, Netflix had grown tremendously and invested heavily in the production of numerous domestic and international movies and television series. Netflix's original movie and series content is offered and available through Netflix's online media library, which people can watch by becoming a member and paying a certain monthly subscription.

The stock value of Netflix fell to $4.85 in October 2002, and a certain downward trend was observed, but the share price surged past $70, and the first stock split of 2 for 1 was done on February 12, 2004. The second stock split was 7 for 1 that happened on July 15, 2015.

The annual revenue of Netflix grew 10 times from 2005 to 2016, and in 2017, the video streaming service added more than $11.6 billion to revenue with a 36% increase. In April 2010, the share price past $100 marked for the first time and closed the year at $175. In February 2011, the share price of Netflix touched $247.55. However, there was a sudden increase in subscription fee that saw Netflix losing almost 800,000 subscribers, and nearly 75% of stock value was lost until November 2011.

On July 15, 2015, the stock of Netflix saw record high value and reached $707.61, but the same day a stock split was done. Netflix reached $100 billion in market capitalization at 2018 and share price of $248 in January 2018. By July 2018, Netflix’s stock was trading at $420 per share.

Current Business and Investment of Netflix

Netflix Inc. is a global internet television provider. Netflix operates in three segments that are International Streaming, Domestic Streaming, and Domestic DVD.

• International Streaming is related to services and streaming content that is offered to international customers who live outside the US
• Domestic Streaming refers to the streaming content offered to customers and subscribers in the US.
• Domestic DVD segment includes a wide range of services such as Digital optical disc delivered to subscribers by mail

The Netflix subscribers and members are privileged to watch original series, films, mini-series, documentaries, movies, and television shows on various streaming channels such as desktop screens, laptops, smart TVs, smartphones, and tablets. In the US, the DVD’s are delivered at the home of Netflix members. The original series, television shows, and movies on Netflix are streamed in over 190 countries.

Risk and Potential in Netflix Environment

Netflix reported revenue of $20.156 billion in 2019. Netflix posted an operating income of $2.604 billion, net income was $1.866 billion, and total assets were $33.975 billion in 2019. Netflix is the largest media and entertainment company in the world based on market capitalization. SWOT analysis is a common strategic tool that allows a company to benchmark its performance and look for weaknesses that can be solved and opportunities that can be availed to ensure future productivity and sustainability. The SWOT analysis of Netflix is given by

• Strengths

Netflix is the largest global online entertainment provider. Netflix has achieved amazing success in video streaming services, original TV series, and movie production. The company has the biggest online subscription-based service. The media content is available online, which means members can access it anywhere and anytime and either by laptop, smartphone, tablet, or Smart TV. Netflix offers various subscription plans that a user can choose according to his choice. Netflix offers its online services in over 190 countries and in multiple languages. The subscribers do not have the hassle to watch any sorts of ads that are frequent on other online media streaming services such as YouTube. The user interface is simple and easy to use, and subscribers get to watch content in excellent audio and video quality.

• Weaknesses

Netflix's main weakness that a user has to have an internet facility to view the media content. In most places of the world, proper and fast internet connection is not available to most users. There is also demand for high quality and valuable content, which is difficult with rising production costs. The subscription rates of Netflix are considered quite expensive in both developing and underdeveloped countries.

• Opportunities

Netflix can do partnerships with numerous telecom providers and offer economical and bundle packages to subscribers. Netflix can also come into agreement with local media houses to allow the company to showcase its content to a larger audience that watches cable TV channels. Netflix should focus on producing and showcasing local content that can appeal to a wider local population of the country. Netflix has the opportunity to develop 4k content and Virtua Reality (VR) content, which is becoming quite popular.

• Threats

Netflix has many competitors due to its offerings in multiple media segments. For example, for television series, subscriptions, and streaming content, Netflix competes with Amazon Prime, Hulu Plus, HBO, YouTube, Showtime, SonyLiv, and CBS Interactive. Netflix also faces difficulty due to content restrictions and policies in certain countries such as China. The expensive subscription fee and monthly fee can be a problem for Netflix as many users will look for other affordable entertainment options available to them. Some part of Netflix’s revenue is also lost due to digital piracy. The economic downturns and decline in consumer spending also impacts the revenue and profit of Netflix.

Stock Analysis of Netflix

Netflix is listed and actively trades on the NASDAQ with the ticker symbols ‘NFLX.’ The company is listed under the ‘Consumer Services’ Sector, and the industry is ‘Cable/Satellite TV.’ Netflix is also a member of other indices such as the NASDAQ-100, S&P-100 Index, and S&P-500 Index.

The all-time high share price of Netflix was $548.73 on July 10, 2020, and the average price in the last 52 weeks is $370.39.

Netflix has a dominant lead in the video streaming market, and its popularity is increasing every day. The ongoing Coronavirus pandemic has badly impacted all types of businesses all over the world, but on the contrary, Netflix business has grown as people who have been asked to stay at home have got an ideal opportunity to watch all their favorite television shows and movies on Netflix.

Netflix ended the second quarter of 2020 with a subscriber base touching 192.95 million, which was 10.09 million increase from the first quarter. Of the 193 million subscribers, almost 38% or nearly 73 million are from the US and Canada. The Covid-19 outbreak halted live sporting events, and cinemas were closed, which drove people to watch more entertainment content online and through the Netflix platform.

Netflix posted revenue of $6.15 billion in the second quarter while earnings surged 165% and were $1.59 per share. For the next quarter, Netflix expects revenue of $6.33 billion and earnings per share (EPS) increase of $2.09. Netflix expects a cash flow deficit of $2.5 billion at the end of the year due to production suspension caused by Coronavirus pandemic. The massive growth is slowing down as businesses have started to reopen, and social restrictions are relaxed, but Netflix plans to improve both service and content to retain subscribers and add new subscribers as well.

The information above is for education purposes only and cannot be considered as investment advice. Past performance is not reliable indicator of future results.