Shares of Netflix (NFLX 2.78%) declined on Monday, as recent developments within the entertainment industry threaten to upend the competitive landscape.
Image source: The Motley Fool.
Megadeals could reshape the streaming industry
Back in February, investors largely cheered Netflix's decision to walk away from its proposed acquisition of Warner Bros. Discovery's film studios and HBO Max streaming service after a bidding war threatened to drive the price well above its nearly $83 billion offer.
Co-CEOs Ted Sarandos and Greg Peters argued that WBD's assets were "nice to have at the right price, not a must-have at any price." Netflix, in turn, was credited with being financially disciplined and a careful steward of shareholders' capital.
NASDAQ: NFLX
Key Data Points
But after Fox made an aggressive $22 billion bid for Roku earlier this month, investors began to question whether Netflix was being a bit too conservative.
Combining sports and news powerhouse Fox with Roku's leading streaming platform could create a formidable new competitor for Netflix, particularly in the fast-growing ad-supported market.
Could this be an opportunity for long-term investors?
Despite this intensifying competition, Netflix remains well-positioned within the streaming arena. Unlike many of its rivals, Netflix is not overburdened by debt. Moreover, its robust free cash flow enables it to reward shareowners with stock buybacks even as it invests roughly $20 billion in content production.
Netflix does not need to buy growth. The streaming leader knows what content to produce -- and when. It also has a proven ability to monetize its steadily expanding membership base via occasional price increases and a rapidly growing ad network.
So, rather than sell its stock as it trades near 52-week lows, patient investors may want to consider buying some Netflix shares at a discount.
