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Can Netflix's (NFLX) Decade of Streaming Dominance Continue in the 2020s?

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Netflix (NFLX - Free Report) stock has been on a roller coaster ride recently, but it is still the best performing stock of the last decade. The company entered 2010 with about 12 million subscribers and was known primarily for DVD delivery.

Fast forward to 2019 and the stock has soared over 4,100% thanks to its rapid subscriber growth, international success, and streaming dominance. However, Netflix hasn’t gotten to this illustrious point unscathed. The streaming giant has faced a multitude of existential threats to its streaming supremacy.

Meteoric Rise

Netflix’s run has taken it from a company that was worth a few billion dollars to a streaming titan with a market cap of over $147 billion, making it one of the 40 most valuable US companies. The company’s rise in the 2010s has outpaced tech giant’s Apple (AAPL - Free Report) , Amazon (AMZN - Free Report) , and Facebook (FB - Free Report) .

It has not been an easy road for Netflix as it saw its stock pummeled in 2011, following its Qwikster debacle. In July 2011, Netflix CEO Reed Hastings raised the price of monthly memberships by splitting DVDs and streaming into separate subscriptions.

The rising competition in the streaming space is the biggest existential threat to Netflix’s continued dominance in the streaming realm. Disney (DIS - Free Report) recently launched its streaming service, Disney+ in November and it reportedly grabbed over 10 million subscribers in the first couple of days. Some analysts think that Disney+ can reach 60 million subscribers two years before expected.

Apple also launched its Apple TV+ streaming service and AT&T (T - Free Report) owned WarnerMedia is expected to launch HBO Max in 2020. Netflix’s continued success in the next decade will largely be dictated by how the company addresses its competition and if Netflix can keep its subscriber base, while many big media players try to coax consumers with expansive content libraries.

Outlook and Estimates

The growth of the streaming TV industry comes as more consumers cut the cord. The video streaming space is currently a $24.2 billion industry and analysts expect the sector to show an annual growth rate of 4.6%. This would make the world streaming market worth over $30.4 billion in 2024.

The expected streaming space growth has caused major media players to turn their efforts to the industry. This has resulted in some of Netflix’s beloved content being removed from the service as media companies gear up to launch their own streaming platforms and effectively eliminate the middle man.

In response to the removal of some of its content, Netflix has doubled down on the development of its original content and just recently dominated the Golden Globes nominations. The total amount of capital the streaming titan is expected to spend on original content in 2019 is projected to come in north of $14 billion. This figure will likely increase for years to come as the streaming wars heat up in the next decade.

Our Zacks consensus fiscal 2019 estimates currently call for Netflix to see a bottom-line hike of 25% to $3.35 per share and for net revenue to jump over 27% to $20.1 billion. The forecasted bottom-line hike would come under the 114% growth it saw in fiscal in 2018 and the projected revenue growth would also be a slowdown in comparison to the over 35% sales hike.

Our consensus estimates for fiscal 2020 forecast for earnings to rally over 63% to $5.48 per share and for revenue to see moderate deceleration to a gain 21.9% to $24.5 billion.

Bottom Line

Our estimates forecast Netflix to continue its growth in the next year. But its sustained growth will likely depend on how it can keep its subscribers from switching over to other rival streaming services. Investors should note that the exponential growth Netflix saw in the 2010s has sent the stock to trade for over 100X its forward earnings, which dwarfs the S&P 500’s average of 18.6X forward earnings. Apple trades for about 21X its forward earnings and Disney has a forward multiple of about 27X.

Netflix also doesn’t offer a dividend, which could prompt some investors to favor other companies that offer a quarterly payout and have a pipeline to the streaming industry. Disney+ is also cheaper at $6.99 compared to Netflix’s $12.99. However, Netflix still has room to grow, especially in international markets and has the first mover advantage in the space with over 150 million subscribers.

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