Please ensure Javascript is enabled for purposes of website accessibility

What Netflix Needs to Do to Reach $1,000

By Neil Rozenbaum – Jun 9, 2021 at 9:30AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Ad-supported content is the way to go, with or without Netflix.

In this video, I will be going over a couple of things that might push Netflix (NFLX 7.81%) to new heights. It's something that Netflix CEO Reed Hastings is unwilling to do as of now. I recently talked about the rise of connected TV (CTV) and the new dawn of TV advertising during the Roku (ROKU 2.61%) and The Trade Desk (TTD 4.09%) videos. Another big catalyst could be the gaming sector.

Ad-supported business

As of today, Netflix's model is pretty straightforward: You pay a monthly fee and you get all the entertainment you want with no ads. That model works well when you're growing fast, but Netflix is maturing in its home market and it could approach a saturation point soon. The company has also reached its target of 60 million to 90 million households in the U.S., as it finished last year with 74.4 million members in North America. 

Price increases can't be done every year, so it might be time for Netflix to look into the ad-supported content world -- just like Hulu, YouTube, and The Roku Channel. But that is something Netflix CEO Reed Hastings has repeatedly been against, saying:

We don't offer pay-per-view or free ad-supported content. Those are fine business models that other firms do well. We are about flat-fee unlimited viewing commercial-free. 

It's a shame because Netflix could leverage its 207 million users and brand name to attract the highest quality of advertisers, and probably premium ad spending. According to eMarketer, the U.S. CTV market is expected to reach $24.76 billion in 2024, up from $13.4 billion this year. 

Time will tell if Hastings will change his mind. 

Video games

The video game industry is booming, and it's not slowing down anytime soon. Last month, reports came out that Netflix might want to dip its toes into the video game market and is considering a "bundle" of games available via a subscription, like Apple (AAPL -2.31%) Arcade. According to a Netflix spokesperson, the company is excited to do more with interactive entertainment. It comes as no surprise since Netflix has been producing series based on video game properties, like Dota, Castlevania, and The Witcher, as well as upcoming shows based on Sonic the Hedgehog and League of Legends.  

The Disney effect

Netflix plans to spend $17 billion on content this year. Original content allows Netflix to differentiate itself, which helps drive subscriber growth and justify price increases. Netflix is the largest streaming content provider, and the company's pursuit of original content is paying off. Currently, Netflix owns eight of the top 10 original series, according to Nielsen. Each year its IP grows bigger, and that means more brand recognition worldwide, more merchandising, more licensing, and maybe in the future, a Netflix theme park just like Disney.   

Combine all three points and Netflix could reach $1,000 or more by the end of the decade. 

For the full insights do watch the video below. 

*Stock prices used were the closing prices of June 7, 2021. The video was published on June 8, 2021.

Neil Rozenbaum owns shares of Roku. The Motley Fool owns shares of and recommends Netflix. The Motley Fool has a disclosure policy. Neil is an affiliate of The Motley Fool and may be compensated for promoting its services. If you choose to subscribe through his link, he will earn some extra money that supports his channel. His opinions remain his own and are unaffected by The Motley Fool.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Netflix, Inc. Stock Quote
Netflix, Inc.
NFLX
$241.88 (7.81%) $17.52
Apple Inc. Stock Quote
Apple Inc.
AAPL
$148.26 (-2.31%) $-3.50
The Trade Desk Stock Quote
The Trade Desk
TTD
$61.77 (4.09%) $2.42
Roku Stock Quote
Roku
ROKU
$60.42 (2.61%) $1.53

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
327%
 
S&P 500 Returns
105%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.