Netflix, Inc. is near all time highs, but investors with a two-year horizon can still expect upside. The stock is at a life-time high, and many with shares may be tempted to book profits. Before you do that, take a look at the huge investments the company is making in original content and global growth– two factors that could drive the next leg of upward movement.
Original content is simply brilliant
Netflix, Inc. has been heavily investing, and in the process attracting big stars, to original content such as “House of Cards” and “Grace and Frankie.” Their programs are innovative and not dictated by the demands of advertisers. Subscribers love them, and get hooked. The craze is such that Netflix is being built into almost every television set these days
However, some analysts are apprehensive of Netflix’s huge spending on original programs, which they argue will ultimately spiral out of control. But that is, at best, a short-term concern. Without that investment, demand will fall. Moreover, Netflix is well on its way to becoming the single-biggest customer for many original content majors such as Walt Disney and CBS.
Netflix, Inc. is already streaming Disney’s direct-to-video releases, and beginning next year, will have the first-run rights to Disney movies. And as the company gets bigger, it will be in an even better position to negotiate with these studios.
Netflix springs into global action
Netflix has been super aggressively expanding its footprint outside of the U.S. The company is expecting to completely roll-out its global operations by next year to almost 200 countries. Japan and China, part of the potentially lucrative Asian market, are very much at the centre of Netflix’s overseas plans. Japan should happen on September 2, while China will be sometime in 2016. Furthermore, the company is set to launch in Italy, Spain and Portugal this year.
Bears argue that successfully executing so many simultaneously launches can be a tall task. But if Netflix manages to pull that off, the opportunity to grow is simply huge. Compared to the U.S., the broadband market in Netflix’s target countries is four times bigger, and is also growing at a much faster pace.
Netflix last month said that it added a record 3.28 million net subscribers, which was well above Wall Street projections for 2.45 million additions. The medium term outlook is even better, and as more subscribers get enrolled into the system, the profit margins will improve.
At $45 billion market cap, the stock price may look steep. But considering that more and more customers are gravitating to Netflix for its edgy content, strong growth is visible. Ultimately that’s what drives prices higher.