The stock's 17% surge in a single day is special, but there's a method to the gladness. Netflix is running away with this market, and the chances of anyone catching up -- even Disney (NYSE:DIS), with its breakneck ascent in this niche -- are thinning with every passing quarter. Let's go over a few reasons no one is going to gain ground on Netflix now.
1. Financial independence is huge
Netflix doesn't want one of the most important nuggets in this week's shareholder letter to go unnoticed. A comment on its financial independence was a bit buried in the copy, but it's the only part of the 11-page letter in boldface:
We no longer have a need to raise external financing for our day-to-day operations.
The juicy revelation comes after Netflix points out in the letter that it's close to being sustainably free-cash-flow positive. It now expects to break even on that front this new year, despite spending heavily on content and growing its global audience. Netflix is so comfortable with its liquidity that it's exploring ongoing stock buybacks.
Financial independence is a pretty big deal. Right now, it may not seem like a game changer for Netflix. After all, Wall Street's hot and interest rates are low, making it easy to raise external equity or debt financing. But it won't stay that way. Netflix also competes against media stocks with deep content vaults and tech giants with huge cash arsenals. Being in charge of its own financial destiny is worth boldfacing.
2. Content is king
Disney shares hit new highs last month -- despite so many of its segments underperforming -- largely thanks to its successful Disney+ media event. Disney has taken just 13 months to hit 86.8 million subscribers, but those accounts are paying less than half than what Netflix is collecting.
Disney has the benefit of an unmatched catalog of intellectual properties, but Disney+ has really only had one hit series in The Mandalorian. Disney will be tapping the well of its monster properties. It announced plans to develop 10 Star Wars and 10 Marvel series in the next few years, but even that won't be enough to catch up to Netflix.
Netflix is the new hit factory. It owns the world. It put out 9 of the 10 most searched-for TV shows worldwide last year, and now it's putting more weight behind its full-length features. Netflix will put out at least one original movie every week this year. There will be stinkers in there, but given its huge audience advantage, even a mediocre flick or series becomes a relevant pop culture release.
3. Making monetization mountains out of molehills
Netflix is growing its audience despite a deluge of new platforms and price hikes of its own. Netflix has increased its monthly rate five times over the past seven years -- a 75% increase in that time -- and its paying members have more than quadrupled.
Only HBO Max commands a stiffer monthly cover charge among the leading streaming services. Will any rival ever make $25 billion a year the way Netflix is right now? The amazing thing is that this $25 billion essentially derives from subscription fees. Netflix has largely shied away from cashing in on its audience through advertising. It hasn't used its pole position with its 203.7 million subscribers to push related products and services. When it comes to revenue streams, these untouched levers are a Virgin River, if you will. Netflix is really just scratching the surface.