Shares of Netflix, Inc. (NFLX) cannot get any sort of relief these days, with the stock now attempting to stage a comeback above $200 per share after yet another blow from some brutal quarterly numbers. The recent round of results saw massive subscriber losses of 200,000, and there is fear that this could be just the start, as consumers tighten their wallets and jump ship to other streaming platforms.
Indeed, the fourth and first quarters have been a one-two punch to the gut on Netflix stock. Whether or not the pain stops with these releases is the million-dollar question. Currently, investors and Wall Street analysts are bracing themselves in case there’s another strike headed its way.
While the stakes are high with Netflix coming off its worst loss in 10 years, the valuation looks incredibly appealing. Undoubtedly, many of us wouldn’t have thought twice about buying into Netflix stock had it ever plunged to a price-to-earnings (P/E) multiple in the teens.
With such a dissipation of interest following weak numbers, it’s hard to find anyone willing to give Netflix the benefit of the doubt, including billionaire investor Bill Ackman. Following the latest round of results, Ackman was quick to announce that he had thrown in the towel, locking in a huge loss in a position he held for just a few months.
Although Ackman’s sale did not give investors a jolt of confidence, Netflix stock does now seem like a great value at just 18.1 times trailing earnings. this is even if it is open season for its subscriber base, with rivals moving in.
Netflix Could Lure Users Back to its Platform
With no switching costs, Netflix has a platform that’s not too sticky. Additionally, with a recession on the horizon and ongoing inflation, price increases and the company’s freeloader crackdown seemed ill-timed, in my opinion.
To win back its users at the hands of rivals, even in a down market, the company needs to increase the stickiness of its platform. Content droughts are to be expected. After all, Netflix can’t have a Squid Game every month! That said, the company needs to add value to its platform to justify price increases.
Currently, it seems like the freeloader crackdown will just result in a greater loss of subscribers since many paying users are buying for more than just themselves. While there is a family plan, it’s unclear whether paying consumers that allow freeloaders would be willing to pursue such an option. Moreover, of course, getting freeloaders to open up their wallets will always be a tough task.
What can Netflix do to get its subscribers back, as rivals beckon them in with bundles? The company needs to create a bundle of its own. The good news, this shift in business model has already begun, with its mobile video game offering.
Netflix Games Could Increase Service Stickiness
Though many may have overlooked the game section on the Netflix app, I do think the category holds tremendous potential to improve the service’s overall stickiness. For now, almost nobody is subscribing to Netflix for its limited mobile game lineup.
In three years from now, Netflix could have a solid video and gaming bundle on its hands. One which could justify a return to its former glory.
However, for now, the company doesn’t seem as willing to spend the big money on video-game content creation.
For now, the implications of Netflix’s gaming ambitions are unclear. Reportedly, Netflix Games is to have nearly 50 titles by the end of the year.
In Netflix’s recent conference call, CEO Reed Hastings sounded pretty upbeat about making a splash in the video-gaming market. Although Netflix will have more than its fair share of doubters, I do think getting into gaming could prove a difficult challenge. Now, a roster of 50 games is intriguing, but Netflix and its investors should focus more on the quality of content, rather than quantity.
Perhaps one blockbuster Squid Game title is all Netflix needs to beckon subscribers back to its service. Indeed, casual mobile games may be a first step that could follow a move towards game streaming, a corner of the market that’s caught the attention of big tech in recent years.
Looking 10 years out, I see Netflix as becoming a player in game streaming. It is a streaming pioneer, after all. In any case, gaming is a market where Netflix is playing from behind (pardon the pun).
Wall Street’s Take
According to TipRanks’ analyst rating consensus, NFLX stock comes in as a Hold. Out of 39 analyst ratings, there are seven Buy recommendations, 29 Hold recommendations, and three Sell recommendations.
The average Netflix price target is $117.13, implying an upside of 60.2%. Analyst price targets range from a low of $235.00 per share to a high of $405.00 per share.
The Bottom Line on Netflix Stock
Netflix is facing profound challenges as it looks to ease its subscriber bleed. Fortunately, a move into video games is a right step as it looks to bundle gaming and video into one service. Netflix Games will have 50 titles by the end of 2022, but it may not be enough to justify recent price hikes. Netflix needs to spend big, perhaps on game-streaming initiatives, to reinvigorate its subscriber growth again.
Fortunately, I think Reed Hastings is the right man to rise up to the challenge.
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