In 2020, much of the analytics on Netflix, Inc. (NFLX) focused on how the streaming space was becoming increasingly competitive and whether Netflix first mover the benefits are diminishing. Then the pandemic locked many of us at home. We knew that the pandemic has helped Netflixbut we get a clearer picture of how much and the market likes what it sees.
Key points to remember
- Netflix has surpassed 200 million subscribers, a new milestone for the streaming service.
- The company has had great success with original content during lockdown.
- Netflix is starting to focus on improving profitability in addition to revenue growth.
An important step for subscribers
In Netflix’s letter to shareholders, the company made key announcements that got investors excited before they even got past the first paragraph. First, Netflix officially passed the 200 million paying subscriber mark based on 37 million subscribers added in 2020. Second, the company grew its annual revenue by 24% year over year. another, with $25 billion in revenue in 2020. Investors are used to seeing Netflix revenue growth, but core dollars are rising even though year-over-year growth is more modest than at some moments in the company’s past.
Subscribers and revenue are helping bring Netflix closer to what investors have long wanted. Netflix is now poised to become a free movement of capital generating machine. Netflix predicts that 2021 will be a year of balance. This is an improvement from an earlier expectation of minus $1 billion. Once the business is firmly in the black, the plan is to repay the obligations and looking at ways to return cash to shareholders – with ongoing share buybacks explicitly mentioned.
The competitive landscape
Netflix finds itself in a fuller market as traditional media companies have come into force in the streaming space. The Walt Disney Company (SAY) Disney+ was an obvious concern for Netflix before the pandemic. To be fair, it still looks like a threat as it hits 100 million subscribers. However, it also seems that consumers are open to multiple streaming services rather than committing to one over the other. Given its success in 2020, Netflix is confident that it can continue to grow subscribers by improving the service.
This increased confidence comes despite more and more entrants like HBO Max, Peacock and AppleTV+ joining established competitors like Hulu and Amazon.com, Inc’s (AMZN) Prime. Netflix has arguably taken the next step in using its user data to create engaging programming. ‘Tiger King’, ‘The Queen’s Gambit’, ‘The Midnight Sky’ and other Netflix Originals have been hugely successful. ‘Tiger King’ has become a cultural phenomenon during lockdown, and ‘The Queen’s Gambit’ has fueled a race on the chessboards.This string of obvious commercial successes may appease investors who worried about whether Netflix had the content creation chops to match established players like Disney and HBO.
The market reaction
The market has shown Netflix a lot of love throughout 2020, and that continues into 2021. Netflix stock jumped over 12% when the results were announced and is hovering around 15% as the market continues to digest the news. In the letter to shareholders, Netflix gives its 2020 annualized stock performance at 67%, easily beating NASDAQ’s still impressive 45%. Those shareholders might find that it’s just the beginning of the fun if Netflix can make its free cash flow dreams come true.
The recent increase in profits has seen Netflix share more than 77% compared to January 2020. It’s an incredible race for Netflix shareholders. The most important news for investors, however, is that Netflix has shown it can handle the fierce competition ahead and its original content strategy is paying off. The company has previously warned that 2021 won’t be as amazing, as 2020 was due to world events that kept people home and watching. But even in this caution, there’s a newfound confidence that Netflix continues to be a major player – and soon to be a major cash flow player – in the streaming industry it pioneered.