Is Netflix at Risk of Spreading Itself Thin?

Netflix (NFLX) stock has been powering higher over these past few weeks, in the face of a broader pullback in equities focused on high-multiple, high-tech names.

Indeed, investors have a lot to get excited about from the video streaming titan. Most notably, the South Korean original Squid Games, which broke records in its streaming debut. (See Insiders’ Hot Stocks on TipRanks)

(Squid) Games Fuels Recent Run

Everybody is talking about the Squid Games these days. It’s as though the blockbuster hit came from out of nowhere. It was an incredibly delightful surprise, both for viewers and NFLX shareholders.

Indeed, the drama series could have much more potential, as it looks to build on its record-breaking launch that saw over 111 million viewers across the globe. Undoubtedly, hardcore fans are already talking about Season 2.

Add Netflix’s pivot to get into the gaming market, and the level of excitement hasn’t been this high in quite a while. Squid Games and the gaming push were enough to propel NFLX out of its funk to hit a new all-time high, as broader markets sagged.

After surging around 30% since June, the stock is starting to get frothy, and the risks of Netflix’s gaming push may be underestimated by investors.

While it wouldn’t be out of the ordinary to see Netflix replicate its success in video games, given its unrivalled competitive spirit, the company may be at risk of spreading itself too thin.

Gaming Push

The company has deep pockets to spend on amazing streaming video content. With more and more firms looking to get into video streaming and original content production, Netflix will need to continue to give users what they ask for to justify the high monthly subscription price.

Amazon (AMZN) and Apple (AAPL) both boast streaming services that are bundled in with other services, providing an incredible value proposition to consumers.

It’s tough to match the inherent value of such services.

Content remains king, though. The firms that continue to spend on quality content, with enough quantity to reach a broader base of viewers, will remain on top, even if the price of admission is high.

It’s clear that consumers are willing to pay a pretty penny for shows that really hit the spot.

As Netflix puts money into its gaming push, though, there are opportunity costs involved. Such funds could have gone towards producing original video content that could have become the next Queen’s Gambit or Squid Games.

Weighing Opportunity Costs

Gaming is an arena into which many of Netflix’s video-streaming rivals are moving. As such, Netflix is really just one-upping itself to defeat many of the same foes it faced in video streaming.

Netflix has already proven it can do video better than most. It’s the king of streaming. If it can become the king of gaming, there’s no question that its gaming push could pay off in a massive way.

For now, gaming is on the house for Netflix subscribers. The sweetening of the pot will improve the value proposition significantly for many subscribers. This could prove to be a major hit to the chin of its rivals, as it looks to match and raise on the value front.

If gaming and video can both deliver incredible blockbuster titles, Netflix will also have the ability to raise its prices, and consumers won’t think twice about it.

Moreover, Netflix’s successful titles in video could translate well into gaming. Think a Squid Game video game for instance. That pretty much turns a must-watch title into a must-play game, allowing Netflix to leverage its millions of users who can’t get enough of the series.

Even if it can’t take a meaningful chunk of gaming versus its rivals, it’ll improve its value proposition. People are spending increasing amounts of time gaming, which could have gone towards watching a show on Netflix.

Investors are beginning to discover that Netflix is no longer a video streaming company, it’s an entertainment company that knows better than most where the puck is headed next.

Wall Street’s Take

According to TipRanks’ analyst rating consensus, NFLX stock comes in as a Moderate Buy. Out of 32 analyst ratings, there are 24 Buy recommendations, five Hold recommendations, and three Sell recommendations.

The average Netflix price target is $645.57. Analyst price targets range from a low of $342 per share, to a high of $780 per share.

Disclosure: Joey Frenette owned shares of Amazon and Apple at the time of publication.

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