Netflix (NFLX -2.52%) investors have been on a rollercoaster over the past few years, with the pandemic boosting the company's stock to an all-time high of $361.48 in November 2021 before it crashed 51% throughout 2022.
The streaming giant has rallied in 2023 -- it added nearly eight million new subscribers in the fourth quarter of 2022, and its stock is up 21% since Jan. 1. However, Netflix shares are still down 48% from their all-time high in 2021. As a result, an investment in the streaming company might be worth considering.
So is it worth buying the dip in Netflix stock? Let's assess.
Is Netflix still the king of streaming?
Netflix's streaming service launched in 2007, almost singlehandedly founding the online video industry. While the company enjoyed a majority market share in streaming for at least a decade, its position has gradually dwindled since 2019. The decline came as streaming competition skyrocketed, with Netflix's market share falling from 25% in the fourth quarter of 2021 to 21% in Q3 2022.
New platforms such as Disney+, Apple TV+, and Warner Bros. Discovery's HBO Max have severely threatened Netflix's position in the market. In fact, in Q3 2022, Disney officially surpassed the company for most total subscribers, and retained the lead in Q4 2022, with 235.7 million members (from Disney+, Hulu, and ESPN+) compared to Netflix's 223.09 million.While Disney's subscriber count may be inflated due to overlap between its three streaming platforms, the multiple services led it to have a 25% market share between Hulu and Disney+ in Q3 2022, four points higher than Netflixs' 21%.
Moreover, Netflix's lead in subscribers has slipped, its content continues to dominate. In 2022 the company was responsible for 11 out of 15 of the most-watched streaming programs throughout the year, with the top four all being Netflix. When it came to most watched streaming originals, Netflix produced all of the top ten.
The company's position as the king of streaming is murky, but there's no doubt it's satisfying audiences with content.
Netflix lacks diversity and reliability
According to Grand View Research, the video streaming market was worth $59.14 billion in 2021, and will expand at a compound annual growth rate of 22.4% through 2030. As a result, streaming stocks make a compelling long-term investment. However, with the market's recent volatility, it might be wise to choose companies where streaming isn't their primary source of revenue.
Netflix has made strides toward diversifying its business over the last couple of years, with the launch of Netflix Games in November 2021 and the addition of its ad-supported tier a year later. The games platform has the potential to be spun off into a separate subscription and revenue stream in the future, but remains a free add-on to a Netflix membership for now. Meanwhile, it's still too early to tell how lucrative ads will be over the long term, and it doesn't instill confidence that the company's success in advertising is still strongly tied to streaming subscriptions.
Considering the competition, Disney has strong positions outside of streaming, such as in theme parks and at the box office, which offset high streaming costs in 2022. Warner Bros. Discovery is similarly active in theme parks, theatrical releases, and video games. Meanwhile, Apple is perhaps the most varied streaming participant, with solid businesses in consumer tech and other digital services such as cloud storage, music streaming, fitness, news, and gaming. As a result, despite a significant rise in subscribers in its latest quarter, Netflix's business is not reliable enough to recommend.
Additionally, the table below illustrates how Netflix's forward price-to-earnings (P/E) ratio currently makes its stock more expensive than Disney's or Apple's.
Data by YCharts
The sharp declines and rises in Netflix's forward P/E over the last year show how the company's stock price has been more volatile than Disney and Apple shares. And with that, there are better investment options than Netflix right now.
There's no doubt that Netflix has the content to attract viewers. However, in a now-highly competitive market, the company needs other sources of revenue to lean on over the long term before its stock can be considered a must-buy.
