3 reasons to buy Netflix stock now

The streaming leader is eyeing several avenues for additional growth.

| More on:
A TV remote in focus with a screen of Netflix options in the background.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

There's no denying that the adoption of streaming video accelerated over the course of the past year and as the global leader, Netflix (NASDAQ: NFLX) was one of the ultimate beneficiaries.

The company added more than 36 million subscribers in 2020, bringing its worldwide total to 204 million, and helping push the stock price up 67% last year.

This, of course, raised the inevitable question about how Netflix will follow up such a banner year. Several developments in recent months provide insight into the company's strategy and there's mounting evidence that Netflix could continue its growth trajectory in 2021.

Let's look at three reasons why now is the time to buy Netflix stock.

1. Cracking down on password sharing

Netflix has long tolerated a certain amount of account sharing, even going so far as to say it was "a positive thing". Back in 2016, CEO Reed Hastings explained, "We love people sharing Netflix whether they're two people on a couch or 10 people on a couch," Hastings said. "That's a positive thing, not a negative thing." 

The company appears to have had a change of heart. In a move Netflix described as a test, some users got a message when logging into the service that read, "If you don't live with the owner of this account, you need your own account to keep watching."

Viewers could opt to receive a verification code by text or email to authenticate the account. They also had the option to verify later. "This test is designed to help ensure that people using Netflix accounts are authorised to do so," the company said in a statement. 

Data suggests that as many as 33% of users share their Netflix password, according to data supplied by Magid Research. With 204 million subscribers, that could amount to at least 67 million unpaid viewers. Given the $14 monthly charge for Netflix's most popular tier, the company is potentially forgoing more than $11 billion in revenue each year. 

This crackdown could help boost the company's monthly subscriber base, thereby boosting revenue.

2. Licensing content?

Netflix has long argued that the biggest reason people subscribe to its service is the seemingly endless library of movies and television shows available on its platform. In-house titles including Stranger Things, Ozark, and The Queen's Gambit have catapulted Netflix to the top of the streaming video industry, and the company has promised that new in-house movies will be released every week in 2021. 

The tech giant may be taking a page from the legacy media playbook and is exploring licensing some of its original content to other outlets, according to a report in The Information. Netflix is considering licensing some of its older movies and television shows, and has had discussions with Comcast's Peacock and ViacomCBS, among others.

While some Netflix originals, including Bojack Horseman and Narcos, have appeared on other networks, they were co-produced by other studios that retained the rights to license them in the future.

These recent discussions revolve around content that is solely owned by Netflix and could result in lucrative licensing fees for the streaming giant. It could also attract new Netflix subscribers into the fold by giving them an idea of the programming they're missing out on.

3. Lower-cost subscriptions

Back in early 2019, Netflix tested a mobile-only tier in several countries that was significantly less expensive than its existing offerings. The lower-cost tier was available on just one mobile phone or tablet at a time with standard streaming quality.

The test was ultimately a success and later that year, the company announced the mobile-only plan was here to stay, initially rolling the plan out in India.

At the time, Netflix said it "will be an effective way to introduce a larger number of people in India to Netflix and to further expand our business in a market where Pay TV ARPU [average revenue per user] is low (below $5)". 

Bank of America Securities analyst Nat Schindler suggests this might be a precursor to a tier that caters to "price-sensitive consumers," citing the success of the test in India and other countries.

Fuel in the tank

With the accelerated adoption of streaming video that occurred during the pandemic, it's widely believed that some of Netflix's growth in 2020 came at the expense of slower subscriber additions in 2021. That could certainly be the case. However, the streaming giant was cash flow positive last year, and it expects that to be the case going forward.  

Given the evidence, there are plenty of reasons to believe that for long-term investors, the Netflix growth story is far from over. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Danny Vena owns shares of Netflix. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Netflix. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Comcast. The Motley Fool Australia has recommended Netflix. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on International Stock News

Businessman using a digital tablet with a graphical chart, symbolising the stock market.
International Stock News

Bull vs. bear: Can the S&P 500 keep rising in 2024?

We review the bull and bear case for the S&P 500 this year.

Read more »

woman with coffee on phone with Tesla
International Stock News

Why Tesla stock put pedal to metal today

Tesla's robotaxi is coming in August.

Read more »

A male investor sits at his desk looking at his laptop screen holding his hand to his chin pondering whether to buy Macquarie shares
International Stock News

If you invested $10,000 in Nvidia stock the day ChatGPT came out, this is how much you'd have today

Buying Nvidia when the disruptive AI chatbot launched would have been a smart move.

Read more »

A Tesla car driving along a road at sunset
International Stock News

Why Tesla stock was climbing today

Investors were encouraged by news of a price hike on the Model Y.

Read more »

Plate with coloured wedges being parcelled out like a slice of pie representing a share split
International Stock News

Stock-split watch: Is Nvidia next?

Nvidia last split its stock when it traded for a pre-split $744 in 2021.

Read more »

A woman in jeans and a casual jumper leans on her car and looks seriously at her mobile phone while her vehicle is charged at an electic vehicle recharging station.
International Stock News

1 Wall Street analyst thinks Tesla stock is going to $125. Is it a sell?

Tesla is no longer a magnificent stock, according to a Wells Fargo analyst.

Read more »

A young man goes over his finances and investment portfolio at home.
International Stock News

Is Nvidia stock a buy?

The company's stock could rise 40% over the next two years and outperform the S&P 500.

Read more »

Man with hands in the middle of two items with money bags on them.
International Stock News

Is Nvidia headed for a stock split?

Nvidia stock has split five previous times in the company's history.

Read more »