3 Reasons Netflix Is Still A Solid Growth Stock

Netflix (NASDAQ:NFLX) gained just 1.54 million subscribers in the second quarter ended June 30. Combined with its first-quarter results, Netflix saw an increase of nearly 5.5 million users this year. Worst subscriber performance since the first half of 2013. The company also told investors last month that it expects to add 3.5 million subscribers in the third quarter, well below analysts' forecast (5.86 million). This weak growth prospect is making many investors nervous and causing concerns for the company's post-pandemic period. Netflix shares have been virtually unchanged this year, with the NASDAQ Composite Index gaining more than 16%. Could this underperformance of one of the most innovative media companies of our time be a worrying sign for long-term investors or new investors? In the short term, Netflix may continue to underperform as subscriber growth slows after huge gains during the pandemic. But in the long run, Netflix's superior position remains, and in our view any downturn should be seen as a good investment opportunity.

3 Reasons Netflix Is Still A Solid Growth Stock:

1.Global Reach

The strongest argument for Netflix's rise is the company's expanding global reach. Although it has acquired about half of its potential customers in the US, it is still a small player in many markets in Asia, Africa and Eastern Europe. The Asia Pacific region, NFLX's smallest location, was the region that generated the most new customers this year. Netflix has acquired 209 million of the 800 million to 900 million households with broadband internet or pay-TV access. The company believes it can reach more than half of these people. Not only will it continue to grow in places like Asia Pacific and Latin America, but it will also continue to grow in the US, Canada and Western Europe. Netflix's non-English films were also popular this year, attracting a large audience. “Lupin” from France, “Elite” from Spain and “Who Killed Sara?” from Mexico. All such productions attracted great attention.

2.Development in Financial Metrics

If the post-pandemic goal is to keep subscribers from unsubscribing, it's clear that Netflix is ​​in a good position to win this race. Despite the decline in subscription demand in Q2, Netflix's churn rate remained low compared to its competitors globally, pointing to the importance of a balanced library of original and licensed content, according to Parrot Analytics.

3.Adding Games

Leveraging its large global subscriber base, Netflix is ​​working to diversify its revenue sources beyond video content and add games to its subscription options. According to Newzoo BV, global consumer spending on gaming software is expected to reach $175.8 billion this year and exceed $200 billion by 2023. According to a report in the Wall Street Journal, the mobile gaming industry, which Netflix is ​​expected to focus on, is on track to generate about half of this year's revenues.

Bottom Line

There's no doubt that Netflix's pandemic-era subscriber boom is over, as the economy is reopening and people are trying to resume their normal activities. However, the company has managed to emerge from last year's unique environment much stronger.