It's a rare stock that can outperform the market by almost 40 percentage points in a year but still seem like a disappointment to many investors. Netflix (NFLX 3.04%) shares fit that description, having more than doubled through the first half of 2018 before careening down to smaller -- but still market-thumping -- gains in the year's final weeks.
So what's the future look like for the streaming video titan, whose cast of direct competitors will include Disney by the end of 2019? Let's peer into our crystal ball.
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1. It will close out another record year
You wouldn't know it just by looking at the stock price movement since October, but Netflix's business is on a tear right now. The entertainment giant added 7 million subscribers in the third quarter to blow past the guidance that CEO Reed Hastings and his team issued three months earlier. Rising monthly fees helped push profitability higher in both its U.S. and international segments, too.
Based on the company's latest forecast, Netflix should end the year with a bang, adding 9.4 million users in results set to publish on Jan. 17, compared to the prior year's 8.3 million. That result would put total additions at 29 million for 2018 to mark the company's fifth straight year of accelerating user gains. Netflix added 24 million users during its blockbuster 2017 fiscal year.
Sure, the company could come up short of that fourth-quarter target. But given the strength of its content lineup, and traditionally strong holiday seasonal period, I'd say it's a bit more likely that Hastings and his team overshoot their latest guidance.
2. The cash crunch will continue
Netflix should update its spending plans for the upcoming year in an announcement that will carry plenty of ammunition for both bulls and bears. Its content investments should jump above the $8 billion it projected for 2018, and that total amounts to a significant competitive barrier. After all, few companies could hope to approach that financial commitment -- especially without the support of almost 150 million paying users providing steady cash inflows.
However, its growing user base and the tilt toward exclusive content means that Netflix needs to pay more cash to keep its pipeline full, and so investors should see rising cash outflows and increasing debt levels ahead even though earnings are rising.
The cash burn isn't concerning management even after landing at around $3 billion in 2018. "We have the same high confidence in the underlying economics," executives said in October, "as our cash investments in the past." The main difference these days is that the bets are getting bigger.
3. More disruptions ahead
It's been a decade since Netflix launched its streaming service and just five years since the company began its original content strategy. In early 2013, executives predicted they were ushering in a "defining moment in the development of Internet TV" when they made the first season of House of Cards -- all of it -- available for streaming. The exclusive content initiative has been a smashing success and is now on pace to approach $2 billion in annual spending.
That content move joins on-demand viewing and binge watching as just a few of the ways Netflix has changed how people consume TV entertainment. There will be more disruptions to come.
Netflix's movie budget is big enough that it can consider itself a viable platform for films to start bypassing theaters, for example. The recent rollout of Christmas Chronicles, starring Kurt Russell, attracted 20 million views during its first week, management said. That would amount to a smashing $200 million opening if it applied to movie ticket sales.
But blockbuster straight-to-streaming movies are just one of the avenues that Netflix is eyeing for disruption in 2019 and beyond. Hastings and his team are right to take an aggressive stance toward these opportunities, at least as long as subscribers keep announcing their approval by boosting their engagement hours to record highs.
