Netflix (NFLX) has certainly had a rollercoaster ride in the last couple of years. The subscription service company had a meteoric rise, so people are understandably split on how the future of the company looks. Some say it has already peaked. Others suggest that its more recent fall in stock price is just a bump on the road on the way to an even better future.
It was recently announced that Netflix had overtaken Apple (AAPL) to become the largest provider of online movies in the world. While the stock struggled a bit last year, this news could propel renewed confidence from investors. Good decisions by company executives and the changing nature of television also indicate a positive future for this company. All of this leads me to suggest buying Netflix right now.
The fact that Netflix is now the largest provider of online movies in the world is pretty remarkable. Just two short years ago, the fledgling company had less than 1% of all online movie revenue in America. By the end of 2011, that number skyrocketed to 44%. Despite the falling stock price, the company overtook Apple. This news means that Netflix could possibly begin its climb back to the top. Taking the top spot is no small feat, and one website even called it "shocking." While "shocking" may be a stretch, it is certainly a great accomplishment for a company whose stock has had such topsy-turvy year.
More recent news suggests even more promise for the future of Netflix, as many of the previous customers are coming back. The fall in stock price can largely be attributed to the reasons as to why these customers potentially left in the first place. Netflix planned on increasing prices last year and considered splitting the company into two separate companies -- one for online streaming and one for the DVD-by-mail service. The decisions were widely panned, and many customers chose to get off the Netflix bandwagon as a result, canceling their subscriptions.
However, at a recent technology conference, CFO David Wells announced about one-third of new Netflix members are people who had previously cut their service. This is great news for the company, and I would expect those numbers to continue to rise, as long as the company refrains from making any decisions that would spark criticism once again.
Netflix cannot afford to stand still as it continues to face competition in streaming online content. Amazon.com (AMZN) just signed a deal with NBC Universal. This will allow it to offer even more content and better compete with Netflix. Regardless, many investors are starting to support Netflix once again. In backing the company, they cite the potential for great original programming and specialty programming, along with the increase in licensed content.
Some argue that Netflix could be making a comeback, but admit that it will be difficult for Netflix to approach the content quality of Time Warner's (TWX) HBO. While this is something to consider, I do not think Netflix's original programming has to be as good as HBO's for it to work. Its format gives it a distinct advantage regardless of content quality. We are already seeing HBO acknowledge Netflix's impact by coming out with HBO Go, another on-demand streaming video service.
If you ask Ted Sarandos-Netflix's chief content officer, HBO is actually learning from what Netflix has done. "Everyone keeps talking about whether or not Netflix is becoming more like HBO, and the truth is HBO is becoming more like Netflix," Sarandos said. "Much more on-demand centric, much more serialized centric. That's the evolution of television, to become more like Netflix."
These are lofty goals, to be sure. Furthermore, he may be right. Television may be changing from the watch-it-when-it-airs past to the watch-it-whenever-you-want future. Traditional television providers are witnessing drops in their ratings, and some analysts believe these drops directly result from the services of companies like Netflix. Originally, services like Netflix were actually beneficial to networks, but they may have become too popular for the networks' good. Sarandos may be saying these things about Netflix and HBO because it is his job, but if current trends continue, he could end up being right. Netflix, if it continues making good decisions, could be at the forefront of a change in television viewing as we know it.
If Netflix wants to be at that forefront, it must be sure to provide high quality content. It is no longer the only game in town, so the company must fend off its competitors now more than ever. Notably, asset management firm Piper Jaffray (PJC) recently compared the libraries of Netflix with its rivals' at Amazon and Hulu, owned by Walt Disney (DIS). The firm found that Netflix's library was superior to its competitors. This is significant, as it shows that despite the increasing competition, Netflix is still maintaining its edge. If Netflix wants to gain back the value it lost over the past year, it will need to be watchful of moves by these other companies. At the moment, however, Netflix still appears to be leading in the industry of online video.
Admittedly, it may be tough for investors to trust in Netflix again, as it fell from around $300 to about $60 in such a short amount of time. Given the latest news about the company's continued success, that drop may have just been a temporary issue for Netflix. It may not regain all of the value it lost, but the stock certainly seems worth buying at its current price around $65 per share. With the very nature of television-watching in question, Netflix may be the type of stock you buy and hold on to for quite some time. When the dust settles, Netflix may be even bigger than it was before its drop.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.