When writing about public companies on my blog, I have said many times that I have never bought, sold or traded a single share of stock, in any public company, ever. While my blog is not a site for financial advice or guidance, I still wanted to disclose that yesterday I purchased stock in Netflix. For me, it’s a long-term play as Netflix really seems to be firing on all cylinders right now and I like their road map for international expansion.
Their subscriber growth outside of the U.S. is starting to see some nice gains, they continue to add new content to their inventory and they are doing a good job of licensing content for the geographic regions they are expanding into. With $455M in revenue from international subscribers for Q2, Netflix’s well on their way to becoming a company with 100M subs within a few years. Most on Wall Street estimate it will take Netflix until 2020 to reach 100M subscribers, but I think they will do it sooner than that. With just over 65M customers, Netflix only needs to add 3M new subs a quarter, over the next 13 quarters, to reach 100M subs by the end of 2018.
Some argue that will be hard once Apple comes out with a streaming subscription service of their own, but until Apple actually has something in the market, if it ever happens, and we can judge whether or not it can compete with Netflix, there is no threat. And while Amazon competes with Netflix, to date, they have not shown they can keep Netflix from expanding. Netflix likes to talk a lot about how they see HBO as their biggest competitor, but HBO’s catalog of content is very small and the one thing consumers have shown us is that they want a lot of choice. Netflix’s content catalog offers real depth and breath of choice, whereas HBO’s is very limited.
What I’d really like to know is what methodology Netflix is using to judge the impact of their original content strategy on their business. They keep saying it helps their business, but we have no details on the direct impact. Does original content produce new subscribers, or is it simply a way to reduce churn? I think the latter, but until Netflix gives out some viewing statistics, which I don’t see them doing any time soon, we have no real way to measure it. But, they would not be spending $100M to create one season of House Of Cards if they didn’t see positive results on their business, so one has to simply trust that they know how to properly measure the impact of original content creation, good and bad, on their business.
Netflix has gotten so big now, with a market cap of almost $49B, that it almost guarantees that they will remain independent. Many have speculated that Netflix’s long-term strategy was to be acquired, but considering how big they are now, who would acquire them? There is almost no one who could afford them and the few that could, think Apple, Amazon, Microsoft, Facebook and Alibaba, have already missed the boat. Netflix is almost too big now for it to make sense for even any of them to acquire the company. And with Netflix only getting stronger, bigger and growing their business well outside the U.S., every day that goes by, Netflix’s value continues to rise. It really is amazing what Netflix has accomplished in just seven years and how fast they have growth.