Netflix (NFLX) is a household name in the entertainment industry. It provides subscription-based streaming services, showcasing movies, TV shows, documentaries, and games on its platform. The company was founded in 1997 and has transformed the way entertainment is consumed by the public. Today, it operates in over 190 countries of the world.
Apart from offering a streaming service, Netflix also creates its own content. It invests heavily in original content with shows like ‘Stranger Things’ and ‘The Crown’ attracting a lot of new subscribers to the platform. The platform’s recommendation algorithm is also quite effective and helps users navigate and find their favorite content better than other platforms. These unique aspects on Netflix help it stay ahead of the competition like Disney+ and Amazon Prime Video.
The end markets for Netflix are simply the consumers who want to consume high-quality content from the ease and comfort of their homes or during travel. Netflix also has partnerships with various Telecom companies that bundle its services with multiple other offerings on their platform. Even though a platform like Netflix doesn’t necessarily need the help of telecom giants to get its content across to the users, it does help ensure that a vast majority of the public gets exposed to their content on a daily basis.
Diversifying into advertising
Netflix’s revenue comes primarily from its subscription model. It offers various pricing tiers to users catering to their diverse needs. It has over 250 million subscribers globally with its cheapest plan starting at $6.99 in the US.
However, in the most recent quarter, 45% of the new signups opted for the ad-supported version. In the coming quarter, this growth in subscription is going have a direct impact on the advertising revenue, without any significant negative impact on the subscription revenue. For this reason, the market continues to give Netflix a higher valuation, with the stock at all-time highs.
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The high valuation is justified. Netflix has a tech-centric approach. It prioritizes a good user experience through its tech rather than just making quality content. This is why users who use their platform tend to stick to it, despite multiple other streaming services springing up in the last 5 years. This is also why Netflix continues to be the leader in streaming.
Netflix’s bullish thesis doesn’t just revolve around its vast customer base and original content. The streaming platform has a history of innovation, which is what companies today need. Consumer preferences change really quickly and Netflix’s brand identity and extensive library allow it to adjust to these changes quickly. This makes Netflix a great long-term investment just before a new revenue stream starts bringing in the results.
Netflix Inc. ranks 21st on our latest list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 103 hedge fund portfolios held NFLX at the end of the second quarter which was 107 in the previous quarter. While we acknowledge the potential of Netflix as a leading investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as ASML but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.