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One might think that Netflix (NFLX -0.93%) should be ready to rest on its video content laurels by now. After dominating the video rental sector to smithereens, the company created the digital streaming business as we know it and continued to lead in the new industry, too. Netflix shifted gears in 2022, refocusing on profitable growth instead of maximum subscriber additions. The move scared investors away for a while, but the stock is sniffing at all-time high prices again. The profitable growth idea seems to work.
So it should double down on what the company does best and evolve into a slow-growing value stock. Right? After all, that's usually what happens in the final chapters of any market-moving growth story.
The company is juggling several potentially game-changing ideas nowadays. The ad-supported subscription plan turned out to be effective and profitable. Locally produced content drives robust growth in overseas territories, occasionally sparking global hits like the South Korean Squid Game and the Spanish Money Heist series. And I can't ignore the recent push into live content, led by partnerships with the NFL and the World Wrestling Entertainment (WWE) events promotion business, a unit of TKO Group.
All of these ideas should shove more value into the pockets of Netflix shareholders in the long run. However, I haven't mentioned the biggest game changer yet. In my view, Netflix's next big move will come when the company turns its free video games into a revenue-generating business.
The video-based media market is not a small pond. The top five companies in this sector generated $168 billion in revenue over the last four quarters. That includes $35 billion in Netflix's revenue streams.
Netflix is casting hungry eyes at the neighboring video game market, though. Entering the gaming industry in a big way could more than double the company's total addressable market size, based on a $250 billion Statista estimate for this year's video game revenues as a whole.
The company published its first five mobile games in November 2021. A handful of game studio buyouts followed, and Netflix's game library kept growing. Today, we're looking at roughly 100 mobile game titles, not counting 32 game-like experiences in Netflix's video-viewing platform.
The titles range from lightweight, kid-friendly fare like Teeter (Up) and Exploding Kittens to more serious names such as Into the Breach or Oxenfree. There are three older entries from Take-Two Interactive's Grand Theft Auto series of blockbusters. Netflix also provides a range of mobile games related to its own hit shows, including Stranger Things and The Queen's Gambit.
You could argue that Netflix has good reasons to spend time, money, and marketing efforts on a perpetually free game portfolio. The games could draw single-minded gamers into the movie-viewing fold. Existing film and TV enthusiasts may find another source of instant entertainment in Netflix's game list, arguably making them more engaged and loyal to the Netflix service.
Sure, that could happen. But the company explored a similar option 13 years ago, and took a very different path. A small but free selection of digital streams turned into the thriving video-streaming service you see today, despite loud protests when the company started asking for money.
You may remember it as the Qwikster crisis. Lots of DVD-mailer subscribers swore off the service in the face of higher prices for the new pair of services. Investors followed suit, taking the wind out of Netflix's market sails and sending the stock price 78% lower in five months.
As it turned out, Netflix had the right idea all along and optimists who bought more stock near the bottom of that plunge have been handsomely rewarded. One hundred dollars invested in Netflix at that low point would be worth $7,075 today.
So I won't be surprised if Netflix decides to copy the Qwikster event by breaking out its games as a separate subscription service. A deeply negative market reaction should be expected, followed by years of booming game service sales and a concurrent stock-price recovery. I'd be happy to chow down on popcorn while buying more Netflix stock in that dip.
"Building the games business is going to be for the next decade of growth. And we're two years in," Neumann said. "Our expectation and aspiration is to grow engagement by multiples of the current size over the next few years to bring bigger and bigger games to our service, more compelling games to our service."
That's a different approach. But a quick separation wouldn't be the first time a leading company changed its mind about a business strategy -- and I really do expect it. Is Netflix really planning to poke that giant bear without challenging it to a serious wrestling match?
You might see Netflix's video game operations as a user-charming side gig or as a potential revenue generator in their own right. Either way, I'm convinced that gaming will be a big deal for Netflix and its investors in the long run.
Anders Bylund has positions in Netflix. The Motley Fool has positions in and recommends Netflix and Take-Two Interactive Software. The Motley Fool recommends TKO Group Holdings. The Motley Fool has a disclosure policy.
Yet, the market sent Netflix stock down 6% in post-market trading, although the selling pressure soon subsided. Apparently, some stock traders were displeased because Netflix guided for third-quarter revenue of $9.73 billion.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Netflix (NFLX) stock is notoriously volatile. And while some nimble traders have surely used NFLX's gut-wrenching swings to their advantage over the years, plenty of punters with less fortunate timing have just as assuredly had their faces ripped off.
On the plus side, Netflix is the king of on-demand streaming entertainment, serving TV series, films and games via 270 million paid memberships in more than 30 languages and 190 countries. It furthermore lays claim to arguably the best brand in the industry.
On the downside, Wall Street puts relentless pressure on the company to grow its subscriber base. As a consequence, Netflix must spend tens of billions of dollars on content to attract and retain viewers. Competition from the likes of Walt Disney (DIS), Apple (AAPL), Paramount (PARA), Amazon.com (AMZN) and others have forced Netflix to splurge on efforts to acquire, license and produce content over the past several years.
After all, nothing hurts NFLX stock like losing subscribers. Recall that in April 2022, shares plunged after Netflix reported its first loss of subscribers in more than a decade. The company shed in excess of $50 billion in market value overnight.
It's also worth recalling that Netflix stock was already in a steep decline at that point. Sluggish subscriber growth and rising costs had long knocked it off its perch. Indeed, shares hit an all-time closing high of $691.69 back in November 2021.
Of the 47 analysts issuing opinions on NFLX surveyed by S&P Global Market Intelligence, 23 rate it at Strong Buy, six say Buy and 16 call it a Hold. One analyst rates it at Sell, while one says it's a Strong Sell.
Dan Burrows is Kiplinger's senior investing writer, having joined the august publication full time in 2016.\n\nA long-time financial journalist, Dan is a veteran of SmartMoney, MarketWatch, CBS MoneyWatch, InvestorPlace and DailyFinance. He has written for The Wall Street Journal, Bloomberg, Consumer Reports, Senior Executive and Boston magazine, and his stories have appeared in the New York Daily News, the San Jose Mercury News and Investor's Business Daily, among other publications. As a senior writer at AOL's DailyFinance, Dan reported market news from the floor of the New York Stock Exchange and hosted a weekly video segment on equities.\n\nOnce upon a time \u2013 before his days as a financial reporter and assistant financial editor at legendary fashion trade paper Women's Wear Daily \u2013 Dan worked for Spy magazine, scribbled away at Time Inc. and contributed to Maxim magazine back when lad mags were a thing. He's also written for Esquire magazine's Dubious Achievements Awards.\n\nIn his current role at Kiplinger, Dan writes about equities, fixed income, currencies, commodities, funds, macroeconomics, demographics, real estate, cost of living indexes and more.\n\nDan holds a bachelor's degree from Oberlin College and a master's degree from Columbia University.\n\nDisclosure: Dan does not trade stocks or other securities. Rather, he dollar-cost averages into cheap funds and index funds and holds them forever in tax-advantaged accounts. "}), " -0-11/js/authorBio.js"); } else console.error('%c FTE ','background: #9306F9; color: #ffffff','no lazy slice hydration function available'); Dan BurrowsSocial Links NavigationSenior Investing Writer, Kiplinger.comDan Burrows is Kiplinger's senior investing writer, having joined the august publication full time in 2016.
A long-time financial journalist, Dan is a veteran of SmartMoney, MarketWatch, CBS MoneyWatch, InvestorPlace and DailyFinance. He has written for The Wall Street Journal, Bloomberg, Consumer Reports, Senior Executive and Boston magazine, and his stories have appeared in the New York Daily News, the San Jose Mercury News and Investor's Business Daily, among other publications. As a senior writer at AOL's DailyFinance, Dan reported market news from the floor of the New York Stock Exchange and hosted a weekly video segment on equities.
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