The big bull thesis on streaming TV service operator Netflix (NASDAQ:NFLX) is shockingly simple — it’s all about the content. The better Netflix’s content, the more subscribers it signs up. The more subscribers Netflix retains, the more it can charge for that content. This means that quality has a direct correlation on Netflix’s revenues, margins, and profits. And, as we know, investors care about earnings … therefore, as goes Netflix’s content, so goes NFLX stock.
That bull thesis scored a big win last night at the Golden Globes award ceremony. Heading into the Golden Globes, Netflix was already a winner with the most nominations of any media company (42).
But the company walked away from the ceremony an even bigger winner, winning 10 awards (the most of any media company) including Best Drama, Best Limited Series, Best Actor, Best Supporting Actress and Best Actress in a Limited Series.
In sum, the Golden Globes affirmed that Netflix is still making the best, most watchable, and most enjoyable content in the world today. So long as that remains true, the company will continue adding subscribers at a very healthy pace and be able to hike prices without much churn.
That, of course, bodes well for the price of Netflix stock.
NFLX Stock: Golden Globes Domination
Not too long ago, the annual Golden Globes award ceremony used to be dominated by broadcast networks. Back in 2010, for example, network programs like Glee, 30 Rock and The Good Wife were winning all the accolades.
But the world has changed a lot since then.
Consumers have cut the cord — going from linear TV to watching a bunch of streaming TV movies and shows. As a result, in recent years, the Golden Globes ceremony has become Netflix’s stomping grounds.
Over the past several years, Netflix has consistently secured either the most or second-most Golden Globes nominations and wins.
This year was no different. Netflix scored the most nominations at 42, and the most wins at 10. Equally as impressive, its wins spanned some of the biggest categories — including best shows and best actor/actress awards — and across multiple titles, including The Crown, The Queen’s Gambit, and Trial of the Chicago 7.
This is a sign of the times.
Netflix makes the best video content in the world. That’s obvious. What’s less obvious is that Netflix is able to consistently make the best content because the company has the most subscribers watching its content, and therefore, has the most resources and data to make the best content.
It’s tough to see anyone rivaling Netflix’s resource or data advantages anytime soon. These advantages seem durable. Therefore, Netflix will likely continue to produce the best content in the world for the foreseeable future, too.
That means NFLX stock will remain on a winning path.
The Netflix Growth Cycle
One of the reasons I really like NFLX stock is because Netflix is built on a virtuous growth cycle that will keep firing on all cylinders for the foreseeable future.
Here’s the cycle:
- Netflix leverages its huge budget and unrivaled data-set on consumer viewing habits to create some of the best TV shows and movies in the world that people actually want to see.
- These TV shows and movies win a bunch of awards and are talked about all the time on social media, which simultaneously makes the existing subscriber base super sticky and attracts new subs to the platform.
- Those new subs fall in love with the Netflix content. To them, Netflix becomes a quasi-necessary part of their daily entertainment.
- This gives Netflix substantial pricing power. With a super-sticky sub base that views Netflix as a necessity, the company can hike prices without much churn.
- More subs plus higher prices equals bigger revenues, bigger margins and bigger profits. It also means more data.
- Bigger profits and more data means a bigger content budget and enhanced data-driven production efforts.
- And we come back to square 1, where Netflix will leverage that huge budget and unrivaled data-set to keep making the best content in the world.
It’s a virtuous growth cycle. Indeed, it’s one of the most virtuous growth cycles in the entire business world.
This virtuous growth cycle will underpin continued strength in NFLX stock.
Bottom Line on NFLX Stock
When it comes to NFLX stock, it’s all about the content. So long as Netflix makes some of the best content in the world, Netflix will keep adding subs, and the NFLX stock price will keep going higher.
Right now, it’s very clear that Netflix is making some of the best content in the world. Considering the company’s durable budget and data advantages, it appears this will remain the case for the foreseeable future, and therefore, NFLX stock is still one of the best growth stocks to buy today.
But it’s not the best growth stock to buy today.
Instead, the best growth stock to buy today is a company that reminds me of a young Amazon (NASDAQ:AMZN). Indeed, I think buying this stock today could be like buying AMZN stock back in 1997 — before it soared thousands of percent.
Which stock am I talking about?