It's not fashionable to like Netflix (NFLX -0.63%) as an investment right now. The company posted mildly disappointing subscriber numbers in the fourth quarter of 2021, paired with historically low guidance for the next quarter's subscriber growth. Netflix shares have fallen 20% since that displeasing earnings report, and scores of critics are coming out of the woodwork.
And I'm just torn between buying more Netflix stock while it's on fire sale, or writing about it for your benefit, dear reader. Our ironclad disclosure policies won't let me do both at the same time.
Well, you win again. If I could only own a single stock, Netflix would be it. I'm simply holding on to my existing Netflix investment for now so I can tell you why I'm so excited about this company and its stock. One of these days, I'll put the pen down long enough to buy some more shares.
Laser-like customer focus sets the stage for long-term success
Nobody treats the viewer quite like Netflix. That has always been true, since the early days of the red DVD mailers.
Back then, Netflix did away with late fees and driving down to the video store, replacing those experiences with a point-and-click online video queue and fixed-fee service to your mailbox. Your local Blockbuster or Movie Gallery store could never match Netflix's massive selection, and companies that tried to copy Netflix's unique business model consistently failed that task. The old-line video chains could never muster the keen focus on a great viewing experience that Netflix offered. They had obsolete business models to defend, after all.
The shift to digital video streams continued the same overall theme. Netflix provides a clutter-free video streaming platform on all of your favorite devices, without advertising banners or ad rolls between videos to distract you. The company keeps coming up with new ways to bring you the content you want to watch next, as effortlessly as possible. A wealth of collected user data helps the Netflix interface put interesting shows and films on your screen.
There is more competition than ever in the digital video sector, but nobody is even trying to do exactly what Netflix does. For example, Amazon.com (AMZN 3.43%) insists on driving you toward buying digital downloads or hard-copy Blu-ray discs at every turn, and the Amazon Prime Video interface is packed with advertising. On Walt Disney 's (DIS -0.04%) time-honored Hulu service, you have to pay extra for an ad-free viewing experience and even then, "a few excluded shows play with ads." Netflix rivals just don't go as far with their customer focus.
Bending with the unstoppable wind of change
That's the not-so-secret sauce behind Netflix's winning ways. If you build a fantastic entertainment platform, the customers will come. And when the environment changes, as it did when broadband connections and video-capable computers became commonplace a decade ago, the company should not double down on the business model that worked in the old market.
Management could have handled the digital leap better and the Qwikster debacle will always be a blemish on Netflix's history. But the general idea of making DVD mailers a rarely seen side gig to a global media streaming empire was always correct. Most media companies would have done the exact opposite thing, trying to stretch out the previous business idea as long as possible -- while some smaller and hungrier upstart is preparing to eat their lunch.
Image source: Getty Images.
...and it's on fire sale, too?
There you have it. Netflix puts the customer first, and the business results will follow. Its original content is dominating the award show season nowadays, and it's hard to find a video service with a more diverse content portfolio. Whatever niche you're into, Netflix wants to have a few shows and a couple of movies for exactly that taste. The start-up period is over, and sustainable cash profits should roll in over the next few decades. Cable and broadcast TV still command roughly 90% of viewership hours in the U.S., which is Netflix's oldest and most mature market. The company stares down a massive opportunity for user engagement growth, which should also feed into surging financial results.
Meanwhile, many investors lost their nerve when Netflix predicted that the next quarter should see just 2.5 million net new subscribers globally. The market uncertainty of the coronavirus crisis continues to muddy the waters. But it's just a minor speed bump on a long road, soon to be remembered as nothing more than an amazing buying window.
Let me put it this way. A first-quarter subscriber boost matching the pace of the year-ago period's 4 million additions would put Netflix's global membership at 225.8 million by the end of March. As it stands, management's guidance stops at 224.3 million. That's just below a 0.7% slowdown, seen through a wide-angle lens. Yet, that forgettable little miss slapped a 20% discount sticker on Netflix stock. I like silly overreactions because they offer up some inviting buying opportunities for us long-term investors.
