Investors interested in Netflix (NASDAQ:NFLX) and its Q4 results will have to wait for about another week. But prior to that, we can still surmise a lot about the strength of the company and NFLX stock.
Despite the fact that Netflix missed guidance as it relates to earnings-per-share (EPS) numbers in Q3, there is plenty of reason to get on board.
As a member of the so-called FAANG stocks — Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Netflix and Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google — the company is American stock aristocracy. And while it may dominate streaming, that alone won’t cause its share price to rise quarter over quarter. Earnings and new subscriptions have been signaling factors for the company in the past.
Content Is King
That phrase has become somewhat of a maxim these days. And for Netflix, it is certainly true that content is king. Media companies, movie houses and streaming companies have to be constantly developing new content in order to drive subscriptions and revenue.
Recent data indicates that the most important factor for Netflix is content. A survey by investment bank Cowen showed that content drives Netflix more so than anything else. The survey indicates that Netflix’s growing library is its strongest draw, even ahead of price.
Therefore, Netflix should be able to continue to charge higher prices as long as it can continue to develop content that brings eyes to its screens. Content simply drives subscribers and earnings. And Netflix has a lineup of new content due out in 2021, which should be able to bring in viewers and dollars.
NFLX Stock in the Age of Covid-19
Netflix also has to worry about Covid-19 vaccines and the effect they have on its business. Many stay-at-home stocks got a shot in the arm from the pandemic. The Pfizer (NYSE:PFE)/BioNTech (NASDAQ:BNTX) and Moderna (NASDAQ:MRNA) vaccines are authorized for use currently. And it looks like AstraZeneca (NASDAQ:AZN), Johnson & Johnson (NYSE:JNJ) and Novavax (NASDAQ:NVAX) are not far behind.
However, the rollout and availability of vaccines have not been as strong as anticipated, and Netflix can safely assume that consumers will be forced indoors for at least a good portion of 2021 as well. So even if those last three vaccines are approved the “new normal” will remain for the foreseeable future.
It seems strange to say it, but the ongoing pandemic can be perceived as a boon for Netflix.
Competition in Many Places
Even though Netflix is the streaming leader and can likely count on viewers as the pandemic wears on in 2021, it does have competition.
Precisely defining competition is never simple, but it’s safe to say that Amazon Prime, Disney’s (NYSE:DIS) Disney+, Hulu, Youtube, and Warner Media’s HBO Max figure into the conversation.
Currently Netflix counts 195 million paid subscribers for its services. Disney+ has been growing rapidly and has to worry Netflix to some degree. Disney grew from 33.5 million subscribers to 57.5 million between Q2 and Q3. The company then stated that it had grown to 73.7 million in Q4. HBO Max has around 13 million users. Youtube TV is above 3 million.
The point here is that cord-cutting is the new norm, and Netflix has some deep-pocketed competitors with strong growth trajectory as well. But Netflix is still in the driver’s seat and should continue to be.
Netflix has already proven that it can produce great content over and over. Right now it has a captive audience because of the pandemic. It also has a leading position in streaming and tons of subscribers, and it has proven that it can raise prices, because consumers want its content. I think Netflix is a buy right now, but a prudent move might be to wait until Q4 results are released in the next week.
In either case, NFLX stock is ahead of the competition, and while some competitors are well-heeled, they simply don’t have the subscribers and will be playing catch up with Netflix for some time to come.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.”