For a long time, Netflix Inc (NASDAQ:NFLX) had been the undisputed king of the video streaming space, but over the past two quarters, it received some jolts, and new competition emerged as well. On Tuesday, the company released its financial results for the fourth quarter, and the streaming giant seems to have come back on track quite strongly.
The company beat Wall Street analysts’ expectations in all the important headline figures and, more importantly, in the subscriber growth metric. However, some analysts feel that following this robust show from the company, and it could be an ideal opportunity to invest in the Netflix stock.
The stock actually declined after the results on Tuesday. It is believed that the fact that Netflix had actually lowered its projections for the year had been one of the reasons behind the disappointment. Moreover, the onset of competition in the form of Disney Plus, Apple TV+, and others soon to be launched services is another factor behind the bearish stance of many. However, it should be noted that Netflix is spending a lot to continue to boost its offering of content, and that will ultimately be the biggest competitive advantage it is going to have over its peers.
Key Analysis
The company’s ultimate goal is possible about building the consumer base progressively before arriving at a position when it can dial down the costs on advertising. Once that happens, Netflix can start concentrating on generating profits. For instance, it spent $2.7 billion on advertising in 2018.
However, if that advertising budget is reduced by 50%, the earnings would be boosted by 70%. The company is now trying to reach that sweet spot, and for that to happen, it has to keep spending to drive subscriber growth. The company is looking towards building a long term profit-generating business, and when that time arrives, investors are certainly going to be very happy.
