DIS - Netflix: Novelty In Content Drives Rich Reinvestment Cycles Of Growth

2024-04-03 11:17:03 ET

Summary

• Netflix's success is attributed to its deep pure-play moat and innovative advertising, allowing it to generate healthy cash flows with strong margins, perpetuating a cycle of deep reinvestments into various components of Netflix.
• While Netflix dominates the VOD market currently, it is reaching saturation in the US. Netflix needs to focus on sub-retention and expanding into other regions for further growth.
• Shareholders must be wary of investment risks such as the rise of generative AI and increased competition from Netflix's larger competitors.
• That being said, AI is both a risk factor and opportunity. Whichever streaming service can integrate such technologies into its own production first will have an immense advantage.

Just 1.5 years ago, Netflix's (NFLX) stellar run had come to a halt - stock prices fell greatly from its $690 high in Oct 21 to $175 in Jun 22. However since then, NFLX has regained its footing and stock prices rose back to all-time highs. It has kept its lead in subscribers, boasting solid financials and consistency in producing original content.

Investment Thesis

Netflix has stood the test of time as a pioneer amongst large conglomerates. As the first-mover into the streaming industry, it has built up a moat of flexibility through its pure-play ideology. Some key factors include innovative advertising capabilities that boost advertising margins, rich diversified content to spur subscription rates globally and strong investor sentiment albeit its intrinsic undervaluation. These in turn, drive unprecedented cash flows for reinvesting, promoting a sustainable cycle of long term growth within the saturated industry. However, NFLX's performance moving forward will be contingent on how it deals with risk factors, namely the threat of AI and increasing competition from its bigger competitors.

Company Overview

Founded in 1997 as a DVD-by-mail movie rental service, NFLX Inc is now an evolved video on-demand ((VOD)) streaming platform with a vast library of TV shows, movies, and documentaries since 2009, a pioneer in streaming. Previously fully streaming licensed shows, NFLX has now evolved to produce more original content....

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