Netflix (NFLX -2.61%) investors have been on a roller coaster in recent years, with the stock reaching an all-time high price of $691.69 in 2021 and then crashing down 51% throughout 2022 amid increased competition and macroeconomic headwinds.
The streaming company's stock has risen 18% year to date after rallying investors by adding 7.7 million new subscribers in the fourth quarter of 2022. However, Netflix shares remain down roughly 8% year over year, with some investors skeptical about the company's future in an increasingly competitive market.
Understanding the pros and cons of a company's business before adding it to your portfolio is always smart. Here's the bear versus bull breakdown for Netflix's stock.
Bear: Netflix lacks revenue diversity
The launch of Netflix's streaming platform in 2007 birthed a new industry and vastly altered how people consume content. As a result, the company's business primarily focuses on streaming, while its competitors built solid businesses in other aspects of entertainment, such as box office sales and theme parks, before heading into the online video market.
Netflix's stock has soared over 29,000% since it first went public in 2022, spending years dominating the swiftly growing streaming industry with relatively little competition. However, newly launched platforms within the last few years have highlighted the company's lack of revenue diversity. Entertainment giants like Disney and Warner Bros. Discovery have threatened Netflix's position in the market, making relying exclusively on revenue from subscriptions less reliable.
Nearly all of Netflix's earnings are directly related to streaming memberships, with its segments split into four geographic locations: U.S. and Canada; Europe, the Middle East, and Africa; Latin America; and Asia-Pacific. Comparatively, Disney's business is split into Media and Entertainment, which includes streaming and box office revenue; and Parks, Experiences, and Products, primarily focused on the company's many theme parks.
Diversification means stability, with companies able to lean on other parts of their business during short-term headwinds. Netflix's lack of diversification led its revenue to rise only 6.5% year over year in fiscal 2022, while Disney's revenue increased 24% during the challenging year.
Netflix has recently taken steps toward diversifying its business with ventures such as Netflix Games and ad-supported streaming tiers. However, both of these businesses remain tied to streaming subscriptions for success. The company would do well to expand into other types of digital services, similar to Apple and Amazon, or focus more on other forms of entertainment, such as theme parks and gaming not tied to its streaming service.
Bull: Dominating streaming content
The bulls for Netflix have remained optimistic about Netflix's past stock growth and the dominating success of its streaming content. The company's shares have risen 23% over the last five years while contending with an increasingly challenging streaming landscape. However, Netflix's stock has increased by over 1,000% in the last 10 years, primarily thanks to the rise of video streaming.
Additionally, despite recent headwinds, Netflix's content kept it competitive last year. According to research from Nielsen, in 2022, the company was responsible for four out of five of the most-watched streaming programs. It also produced all 10 of the most-watched streaming originals. Hit shows such as Stranger Things, Ozark, and Wednesday dominated consumers' screens, outperforming multiple Disney+ shows based on franchises such as Marvel and Star Wars.
While many other companies have attracted streaming subscribers by expanding established franchises, Netflix has a proven talent for developing completely new intellectual properties (IPs) that garner millions of views. Successes such as Stranger Things, Ozark, and Bridgerton are just a few examples of why Netflix hasn't had to acquire expensive content libraries like Amazon did with MGM in 2022.
Netflix is a content king and continues to offer compelling reasons for subscribers to stay, holding the largest market share of any single platform at 21% as of Q3 2022.
Is Netflix stock a buy?
Netflix paved the way for video streaming, triggering the mass adoption of the technology. More recently, increased competition has made relying solely on streaming subscribers murky. Nevertheless, bulls have a strong argument with the company's dominance in content, with its library a valuable asset that could prove lucrative in the long run.
However, its business currently feels too uncertain compared to the competition. Netflix's reliance on streaming subscribers increases the volatility of its stock, with membership figures likely to fluctuate from quarter to quarter. Meanwhile, competitors such as Disney, Apple, Amazon, and Warner Bros. Discovery have growing positions in streaming, yet have also had immense success in other industries.
As a result, I'd consider investing in one of Netflix's competitors first, which could see your money go further by investing in alternative markets such as theme parks, movie theaters, consumer tech, and more, depending on which option you choose.
