The Biggest Threats to Netflix (NFLX)

In May of 2002, Netflix, Inc. (NFLX) opened for trading at $15 per share. The stock trades at $356.18 per share as of October 9, 2018. Are you imagining having invested your entire net worth in Netflix at its initial public offering (IPO)? The only thing you can do now is attempt to figure out if there is more room to run. Before you scoff at this possibility, consider that many investors said the same thing at $100, $200 and $300 per share. However, that doesn’t mean Netflix’s stock will continue to appreciate at the same pace, or at all. What makes the Netflix situation unique is that the tailwinds and headwinds are about equal. It is challenging to determine what will happen within the industry given all the surprise announcements, so let’s start with recent results and then look at some of the competitors.

In 2018, Netflix reported second-quarter 2018 earnings per share of 85 cents, beating expectations by 6 cents. Revenue for the quarter was $3.91 billion missing expectations by $30 million and increasing 40.1% from the second quarter of 2017.

For the first half of 2018, the firm has $7.6 billion in revenue, an increase from $5.4 billion in 2017. GAAP earnings per share are $1.50 versus 55 cents for 2017. Streaming memberships in the United States are 57.4 million compared to 51.9 million in 2017. International streaming memberships are 72.8 million compared to 52.0 million in 2017. As such, the company continues to show the ability to aggressively grow its member base. (For more, see: Five Reasons Why the Netflix Juggernaut Could Continue to Roll.)

Netflix has several competitors but has managed to outpace the industry in innovation. It seeks to innovate and deliver more efficiently and faster than its competitors, providing a market-leading offering rivaled by only a few. Its current competitors include HBO (HBO Go app), CBS (CBS All Access), Amazon, Vudu, Hulu and the streaming capabilities of network providers such as Comcast and Verizon.

It’s very difficult to determine how market share will evolve and how consumer percentages will break down in terms of percentage of homes connecting to multimedia through the internet via TV, tablet and smartphone. Statista provides a multitude of metrics on the company, reporting that it currently holds a majority of market share activity in the American digital video segment at 64.5%.

It is possible for an investment to offer an equal amount of potential and risk. Netflix continues to report the ability to aggressively grow member market share in the United States and internationally. Its innovation and reputation are helping it to maintain a leadership position in digital video with its subscription cost making it the most optimal choice for customers seeking video streaming and multimedia add-ons. (For more, see: Netflix: Should You Buy or Hold or Sell?)