Is this the end of the ‘video-streaming bubble’?

Seven years ago, Marc Andreessen, the legendary Venture Capitalist who co-founded the well known VC firm Andreessen Horowitz wrote an article in the Wall Street Journal titled  ‘Software is eating the world’.

In the article, he highlighted the growing dominance of the top software companies of our time such as Facebook, Inc. and Google.

One such company mentioned was Netflix, Inc. which, along with Youtube (owned by Google), is the global leader in video streaming.

ASX companies such as Telstra Corporation Ltd (ASX: TLS), Nine Entertainment Co Holdings Ltd (ASX: NEC), Fairfax Media Limited (ASX: FXJ) and Seven West Media Ltd (ASX: SWM) have all pivoted their businesses in one way or another to benefit from the video streaming trend.

Fast forward seven years and Netflix’s share price is up by over 1,000%.

With a share price that is priced for subscriber growth, markets were spooked last night when Netflix reported 670,000 new US subscribers and 4.5 million international subscribers in Q2 which might sound staggeringly high but is significantly lower than analyst expectations of 1.2 million new US subscribers and 5.1 million new international subscribers. 

That prompted Netflix shares to drop by 14% in after market trading and now market commentators are asking whether this is the end of the video-streaming bubble.

Is there a video-streaming bubble?

Perhaps. Typically when the word bubble is mentioned, it implies an unsustainable short term over-valuation that is likely to ‘burst’ soon.

While there is no way to know for sure, if I consider the next 10 to 20 years and I ask myself whether I think the world will be streaming more or less videos, it’s hard to say it will be the latter.

Foolish Takeaway

Netflix has had its fair share of well meaning and well informed detractors. Despite that, investors who have patiently held its shares through all the turbulence got themselves a 10 bagger.

Whether its with Netflix or any other investment, the only term that counts for a Foolish investor is the long term.

7 of 8 People Are Clueless About This Trillion-Dollar Market

One of our investors has recently returned from a research trip to Silicon Valley... and has a warning for fellow investors:

Because he works for an organization dedicated to spreading great investing ideas, his video report is free today... so you can see it and decide for yourself.

Don't miss your chance click here to learn about this warning and how you might be able to profit!

Kevin Gandiya owns shares of Alphabet (C shares).

You can find Kevin on Twitter @KevinGandiya.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Facebook, and Netflix. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia has recommended Alphabet (A shares), Facebook, and Netflix. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.