Netflix (NASDAQ:NFLX) is a stock that can invoke quite a bit of emotion. In fact, in the service sector, there are few other stocks that are as heavily debated. Today, we'll talk about the bearish argument, the bullish argument and why I believe that NFLX is going to soar moving forward.
The Bearish Argument
While I do believe that Netflix is going to climb, I will say that the bears have a very valid argument when it comes to the stock. That argument is two-fold:
- US Sales – The first, and perhaps most important part of the bearish argument has to do with sales growth here at home. NFLX started in the United States and when it did, it took off. However, more recently, it seems as though the market has saturated as user growth on the streaming video app has started to plateau. The bears argue that this is a sign the stock is headed down.
- Competition – The bears also point to growing competition in the streaming video industry as a reason for coming declines. In fact, they argue that it could be this competition that's leading to declines in user growth, which could make the stat a bit more grim. It's hard to deny that NFLX has more competition today than ever before. After all, even Twitter (NYSE:TWTR) is trying to break into the streaming video space.
The Bullish Argument
While the bearish argument comes with some very valid points, the bullish argument is also strong. Here's how the bulls see it:
- Maintained Large Market Share In The United States – First and foremost, the bulls don't argue that user growth is slowing in the United States. However, they point to the fact that in the US, NFLX is still king. The company maintains a leading market share in the streaming video space and will likely continue to do so for the foreseeable future.
- International Opportunities – Another important fact here is the international opportunities the company has courted. Late last year, we learned that NFLX was going global. The bulls argue that the global prospects in this industry are so large that declining user growth in the United States is likely to be completely absorbed and then some by revenue generated internationally.
- Disney – The final piece to the bullish argument is one that comes in full swing next month. A few years ago, Netflix entered a deal with Walt Disney Company (NYSE:DIS). Under the deal, the company was given permission to stream Star Wars: The Clone Wars. However, the deal was written in a way that would give NFLX the right to stream more and more exclusive content over time. For example, the company is currently allowed to stream Disney/Marvel-owned assets like Jessica Jones and Daredevil. However, in September, this contract will open up in a big way when NFLX will become the exclusive streaming partner for first-run theatrical releases across Disney Studios. This includes assets from Pixar, Disney Animation, Disney Pictures, Marvel and LucasFilm. Considering the popularity of Disney films, the bulls argue that this will send user growth skyrocketing and help to maintain the users Netflix already has.
I See Tremendous Opportunity
The reality is that while there is some downside risk, there is always downside risk associated with investing. In the case of NFLX, the bearish opinions on the stock have caused it to stay at a relatively low valuation recently. However, the bulls have very valid points. At the end of the day, international trends will likely lead to revenue growth and the Disney deal is incredible for user growth and retention in the United States and around the world. All in all, while there is some risk, I expect to see long-run gains.
Where do you think NFLX is headed?