There's no denying that Netflix (NFLX -0.01%) was a millionaire maker in the past. The stock is a 465-bagger since going public at a split-adjusted price of $1.07. The leading premium service went public at $15 in the springtime of 2002, but after a 2-for-1 and then a 7-for-1 stock split the cost basis is whittled down to a little more than a buck.
Will the good times continue for its shareholders? Can Netflix rise above recent aggressive competitor moves? Is a recent price hike a subscriber-shedding threat or a margin-widening opportunity? There are plenty of questions to tackle in deciding if Netflix will be a millionaire maker in the future. Let's size up the chess board for the company that brought us The Queen's Gambit.
Keeping the king in the game
Netflix is crushing the market again in 2020, heading into the new trading week with a 54% year-to-date gain. Shareholders aren't technically on top of the world right now. The shares would have to climb another 15% to take out the all-time highs set back in July. However, its audience count has naturally never been higher than it is right now.
There were more than 195 million global streaming paid memberships to the platform at the end of September, and Netflix expects to top 200 million by the end of the year. All the world's its stage, with subscribers in the U.S. and Canada now accounting for just 37% of its audience.
Netflix did recently increase the price of its streaming service in the U.S. and other markets. Stateside subscribers will now be paying $13.99 a month for the platform's most popular plan, up from $12.99 a month. It has now bumped its prices higher in five of the past six years. Wall Street tends to celebrate the hikes, giving Netflix more money to pad its content leadership and grow its margins given the scalable nature of the business. The rub here is that last year's increase resulted in the worst subscriber guidance miss in its history.
It bears pointing out that last year's hike was also its largest move to date. The path from $7.99 to $13.99 a month since early 2014 has happened in $1 increments outside of last year's $2 boost. With the global pandemic keeping folks streaming more now than ever it's also fair to say that Netflix's value proposition has only gotten better despite the loftier monthly cover charge. This is still something investors will need to monitor through the next couple of quarters.
Never losing sight of the pawns
Another potential stumbling block is the competition. Consumer demand for streaming entertainment may never be higher, but the competition has never been as aggressive as it is right now. Walt Disney (DIS -1.03%) landed 73.7 million subscribers in the first year of Disney+ availability. Last week we learned that HBO Max subscribers will enjoy the Warner Bros. slate of films at the same time that they hit theaters through at least the end of next year.
The competition is hungrier, and they're bringing more ammo. A year ago one could argue that Netflix was the equivalent of basic cable, the default entertainment standard in most homes. Now several platforms are vying for viewer attention, and supply of quality content may be outpacing demand growth.
For now you can't bet against Netflix. No one is even close to having the breadth of data it has in assessing consumer streaming tastes and behavior. It's still the cultural tastemaker. If you don't like what's trending on Netflix now, come back in a few days when it's a whole new mix of binge-inspiring diversions on offer. If its pricing elasticity survives its latest increase -- in this highly competitive environment -- the ceiling will be substantially higher. Netflix continues to be the envy of media stocks, and until that changes it will continue to be a millionaire maker.