Netflix's $140 Billion Opportunity Could Surprise Investors
Key Points
Netflix’s gaming investments are yielding positive results.
Management sees games driving higher engagement and boosting member retention.
The stock’s valuation is attractive after the recent dip.
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Netflix (NASDAQ: NFLX) reported another solid quarter of growth, with revenue and earnings per share both up by double-digit percentages year over year. The stock initially dipped on a weaker-than-expected outlook for the first quarter, but this only underscores that investors continue to underestimate the company's opportunities.
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Management continues to explore multiple avenues to expand the business, including advertising and gaming. Ad revenue more than doubled last year, and gaming could be another huge opportunity. Netflix noted that its gaming investments are yielding positive results, with party-style TV games driving higher engagement.
Netflix isn't trying to conquer the gaming market, but management noted that this is a $140 billion market excluding China. It's just scratching the surface of this opportunity. Management noted instances where it is already seeing games extend time spent on the service, ultimately leading to better member retention.
Games are a way to further distinguish Netflix's platform from competitors', including Alphabet's YouTube, the most-watched video streaming platform. If Netflix can capture more screen time, it will increase the value of its platform for investors and boost its pricing power, potentially boosting long-term revenue and earnings growth.
The company's momentum in advertising and gaming is just an example of how Netflix has multiple ways to increase the value of its platform and drive shareholder returns. The dip has brought the stock's valuation down to a reasonable forward price-to-earnings multiple of 27, which looks very attractive against the company's double-digit earnings growth and future opportunities.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Netflix. The Motley Fool has a disclosure policy.
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