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Content streaming stocks were rocked last year, with industry leader Netflix (NFLX) nosediving around 75% from peak to trough. Undoubtedly, the streamers weren't the only group of tech-oriented plays that were punished severely as the reality of higher interest rates set in. Fintech firms also suffered quite the devastating hit to the chin, with many once-loved stocks, like Block (SQ) and PayPal (PYPL), still a long way off from their highs. But unlike the fallen fintech stocks, I do think the streamers can pick themselves up off the canvas as the industry continues its evolution.
Of course, the economics of the streaming business do not seem nearly as impressive as they used to. During Netflix's glory days, streaming used to be the hot place to be in tech. Nowadays, streaming is just the new norm. It's not innovative anymore. Arguably, it hasn't been for more than a decade! Still, media companies have been forced to get into the streaming game or risk going the way of the dodo bird. Unfortunately for legacy media companies eager to catch up to the likes of Netflix, the move into streaming has been anything but lucrative. It's been a necessary shift, but a very expensive one.
Netflix Has Rivals, But They've Struggled to Take the Crown
For companies like Paramount (PARA) and Warner Bros. Discovery (WBD), the move into streaming has been met with muted results. Entertainment kingpin Disney (DIS) may have heated up ahead of its Disney+ streaming service launch during the early days of the COVID-19 pandemic. However, shares have since surrendered all those gains, and are now in a historic funk - with no apparent way out.
Disney+ has a lot of great content. Arguably, it's quite tech-savvy as well, with an intuitive user interface and intriguing features like SharePlay.
But nice interfaces and SharePlay are pretty much standard when it comes to streaming platforms these days. It doesn't matter where a streamer is coming from (a tech background or media); streaming tech and even artificial intelligence (AI) algorithms cannot trump what matters most in the streaming world. As the old saying goes, content is king. And it will remain king as the streaming industry moves further into the AI age.
Of course, AI and other exciting features can enhance the overall streaming experience. But a platform is as only good as its content. In that regard, it's not a mystery why Netflix remains the player to beat in the streaming world. The company has defended its turf on this front rather well. And I believe it will continue to be player number one in a market that could see a growing number of participants.
Since bottoming out in June 2022, Netflix stock has been incredibly hot. The stock is now up more than 155% from those lows.
During the dark days of early summer 2022, though, it seemed like no bottom was in sight. Indeed, the company may have been viewed as desperate for venturing into lower-cost tiers while targeting freeloaders.
In hindsight, it's apparent that Netflix was smart for taking these steps to make its content available to a broader range of audiences. With a remarkable content library, Netflix remains one of the first streaming services the average user will flip to. It knows what audiences love, and has been able to allocate capital to keep users engaged in a more cutthroat industry environment and a wilder macro climate.
Can Netflix Stock's Rally Last?
After an impressive rally, shares of NFLX now trade north of 44 times trailing price-to-earnings (P/E). On this basis, it's an expensive stock again - but one that could grow into its multiple, according to some analysts on Wall Street. Oppenheimer's Jason Helfstein recently praised Netflix stock, noting it could surge as high as $515 per share.
What could drive such a continued run? The freeloader-crackdown windfall.
Indeed, there's a good chance the market has underestimated the potential behind the password-policing effort - which was not a popular decision. But where will freeloaders go once they're kicked off a paying subscriber's account? They'll probably subscribe themselves, or else miss out on the exclusive, quality content Netflix continues to deliver. I think Helfstein is right; Netflix stock may just be getting started.
Will Momentum in Netflix Stock Spread to its Peers?
I'm not so sure. Paramount, Disney, and Warner Bros. Discovery all have their own slate of issues. For Paramount, streaming losses retreated in its (latest) second quarter. Still, there's a ways to go. In any case, the stock is absurdly cheap at 0.44 times price-to-book, making it one of the most intriguing deep-value plays in the market. Meanwhile, Warner Bros. Discovery still has a mountain of debt that could weigh it down for some time.
Finally, Disney has endured its fair share of struggles, but I do think it has the best streaming platform to take on Netflix. Of Netflix's rivals, I like Disney as it looks to find a balance between growth and profitability. Whether Netflix's momentum can spread to those battered shares of DIS, though, remains the big question. There's a good chance it could, if CEO Bob Iger plays his cards right.
On the date of publication, Joey Frenette had a position in: DIS . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
