Investors can look at the world around them and notice long-running shifts in consumer behavior. There's no question that one of the biggest changes in the past decade or so has been how people watch video content.
I'm specifically pointing to the rise in streaming entertainment. According to Nielsen data, consumers spend more time daily watching streaming content than traditional means of TV. And this has huge investment implications.
However, 62% of Americans think there are too many streaming options these days. This might be the case, but there's one dominant stock that is poised to beat out the competition over the long term.
It's getting crowded
Trying to pick what to stream on TV seems like a hassle. There is an unlimited number of choices. Top services like Netflix, Amazon Prime Video, Walt Disney's Disney+ and Hulu, Warner Bros Discovery's Max, and Apple TV+, to name some, are all vying for attention and dollars.
While streaming is meant to provide a far superior experience to traditional cable TV, primarily in terms of cost, ability to watch anytime, and lots of choices, the current setup looks to be taking us back in time. And consumers are making some changes.
More people are trying to cut things out, with 37% of consumers saying they have fewer subscriptions than a year ago. This was up from 13% saying they had fewer memberships in 2022 from the year before. As prices rise, this situation will likely only become more obvious.
NASDAQ: NFLX
Key Data Points
Netflix reigns supreme
There might be way too many streaming choices out there, but I think consumers would be least likely to cancel Netflix. The dominant streaming service is priced toward the higher end (for the ad-free option) compared to rivals in the U.S., but it has the lowest churn. I believe this is a clear indication of the value that consumers find.
Of course, having a first-mover advantage in the industry has given Netflix massive scale, as demonstrated by 260 million members and 2023 revenue of $34 billion. This will allow the company to spend $17 billion on content this year.
Top criteria that consumers value when it comes to streaming services are original and exclusive shows and movies, as well as previously aired shows and movies. Netflix absolutely shines in this regard.
Just look at some of its most popular series, like Stranger Things 4, Bridgerton: Season 1, and Wednesday: Season 1. Combined, these shows were viewed for more than 4.4 billion hours. And consumers aren't able to watch them anywhere else.
When it comes to previously aired shows and movies, Netflix has also proven how valuable its distribution capabilities are. Suits is a popular series, but it was created by Comcast's NBCUniversal. It's been available to stream on Netflix since June 2023, and it has now become the most-watched acquired series on the platform. Only Netflix is able to take an old show and revive it, providing access to a brand-new audience.
There's a high probability that Netflix will continue to beat out the competition over the long term. That's because of how sound the business is from a financial perspective. It posted a 21% operating margin and generated $6.9 billion of free cash flow last year. Disney's direct-to-consumer operations reported a $138 million operating loss in the company's fiscal 2024 first quarter (ended Dec. 30).
Netflix not only has a wide reach, but it has the financial resources to continue investing heavily in creating and acquiring fresh content. All the while, its profits keep rising. Netflix is already a winner in the streaming wars, and it's in a position to keep up this dominance over the next decade and beyond.
