Netflix (NFLX 0.46%) delivered a stellar fourth-quarter earnings report, with global paid subscriptions increasing by 8.5 million to reach 203 million total. While Netflix's breadth of content is a subscriber magnet, management acknowledged the recent success of rival services as a sign that the demand for streaming content has hit a new level following the pandemic.
In the earnings report, management didn't fail to acknowledge the success of Walt Disney (DIS -1.59%), which has emerged as its main rival over the last year. In fact, management spent quite of bit of time discussing the growth of Disney during the fourth-quarter conference call, as if they are excited to see competitors do so well.
As CEO Reed Hastings said during the call, the success of Disney "shows that members are interested and willing to pay more for more content because they're hungry for great stories."
The streaming market is expanding, with more services casting a wider net, causing more people to make the shift from traditional media to direct-to-consumer services, and that's good news for the leader Netflix, which has the broadest content offering.
Streaming competition is overrated
Contrary to what some might have predicted, a crowded streaming market has only helped Netflix. In the last quarter, Netflix saw subscriber growth in its most saturated market accelerate, and that was despite raising subscription prices in the U.S.
Netflix added 0.86 million subscribers in the U.S. and Canada (UCAN), up from 0.18 million in the third quarter and 0.55 million additions in the year-ago quarter. It now has nearly 74 million subscribers in UCAN, but still growing.
Moreover, this was on top of several new competitors entering the market over the last year. Most noteworthy was Disney+, which gained more than 86 million subscribers in its first year. Meanwhile, AT&T's (T 1.06%) HBO Max ended the third quarter with 57 million subscribers. These are incredible numbers for relatively new entrants.
However, Roku's (ROKU -2.29%) performance might give an even better view of what is really fueling Netflix's growth right now. Roku hit 50 million monthly active users on its platform in 2020, with 17 billion hours streamed by users. The total hours streamed represented an increase of 55% year over year.
Roku's robust growth shows that more people are subscribing to multiple services, which is driving new user activations on its streaming platform. Even Netflix Vice President Spencer Wang admitted during the fourth-quarter conference call that he is a "happy Disney customer."
The growth in streaming is so strong that Netflix still sees growth potential in the U.S., a market that is at 60% penetration.
Netflix won't slow down
If Roku is right and all television shifts to streaming in the future, Netflix could be a much more valuable business 20 years down the road. As streaming becomes the standard, it will only place a bigger spotlight on what Netflix has to offer in the area of entertainment.
Netflix's content strategy to provide something for everyone has worked beautifully, but now it must feed the monster of more than 200 million members hungry for more. The company plans to do just that by launching at least one new original film per week in 2021. It also has over 500 titles currently in postproduction or preparing to launch.
International growth is a given at this point, so investors should watch subscriber growth in the U.S. market because that will speak volumes about how well Netflix is executing its growth strategy.