At first glance, launching a new operation with 52 million customers sounds likes starting out with a built-in moat.
And that’s exactly what NBC Universal was looking for when it announced on Jan. 16 it’s launching a new online video service.
To sweeten the offer to its installed base, NBC says the new service will be free to existing clients – though to get it for “free,” members have to put up with watching ads.
Whether a new ad-supported streaming service will work in the long run is an open question. But this much is clear, the media is making it sound like the streaming media war is entering a brutal new phase.
On paper at least, that makes a lot of sense. After all, The Walt Disney Co. (NYSE:DIS) is set to launch its own service late this year based on its unique content.
But if these competing headlines make you feel uncertain about how to make money – and which firms will succeed – in this great tech field worth nearly $139 billion, don’t worry.
I’ve got you covered. Today, I’m not only going to show which streaming video firm will lead the pack…
And I’m going to tell you why, when markets still seem unsettled, it’s also a great stock to own for the long haul…
Cutting the Cord
There’s just no doubt that TV viewers continue to migrate to web-based streaming services. I see it anecdotally within my own family of course. And now a new report by ratings and analytics firm Nielson shows just how big a trend this has become.
The firm about 14% of U.S. households have become “cord cutters,” or those who have migrated from cable to online only. But the shift to online is actually bigger than it sounds.
The number of cord cutters in the U.S. soared 48% in the past eight years alone. Roughly 16 million homes are web-based only, meaning they have neither cable nor traditional terrestrial TV.
Here in the U.S., competition has no doubt heated up in the last couple of years. Besides new on-demand services set to launch from NBC and Disney, consumers can already choose from Sling TV, DirecTV Now, PlayStation Vue, Apple TV and YouTube TV.
But those new services greatly lack something crucial for long-term sales and profit growth – true international access. As a result, they’re leaving a lot of money on the table.
Future Market Research pegged the global value of streaming video at $138.9 billion last year. A decade from now, it’ll be worth more than $591 billion, growing at a rate of more than 15% a year.
And that’s one of the reasons why I still believe the single best way to profit from this lucrative trend is to invest in Netflix Inc. (Nasdaq:NFLX). The firm offers us the best of both world’s – a diehard base of U.S. subscribers addicted to its content, and broad global reach.
Leaving the Networks, Rivals In the Dust
In fact, the firm’s most recent, top-flight quarterly report, was led by news that its global business is soaring. The firm added 7.3 million new international subscribers – around 20% better than forecasts – leaving it with some 110 million total viewers outside the U.S.
That figure should swell to 156 million by next year, BMO Capital Markets says. And by then, Netflix’s global client base will be twice as large as its domestic base.
Netflix is now ramping up in 190 countries. In many of them, it’s still in the early innings. This alone suggests a long and lucrative runway that should stretch well into the next decade.
That’s not to say that Netflix’s domestic biz is a small fry. The firm just said around 10% of all TV and movie viewing hours in the U.S. took place on Netflix this past quarter – a company record.
And as if to prove to the market yet again just how sticky this streaming service is with its domestic clients, Netflix recently announced a broad set of monthly price hikes. The firm does extensive market research and has found that the bulk of its members find the service to be so valuable, they’re willing to pay higher prices.
As analysts at Barclays noted, “the slope of the subscriber growth curve has steepened every year for the last 3 years despite prices going up 30% over this period.”
If nothing else, Wall Street loves a firm with strong pricing power. Shares surged 6% on the day the price hikes were announced.
To see why, just take a look what’s going on at my house. In the past few months, we have added two new streaming services. That brings the total to five, including one that provides us with access to live TV.
But there’s no way we are dropping Netflix. The firm simply offers too much great content, along with the ability to share access with all members of my family.
For us, Netflix and Apple TV run neck-and-neck. Amazon Prime remains a distant third, and we tend to use the other two services on an “as needed” basis.
Taking the Fight to Hollywood
Here’s why… Netflix has morphed into a major TV and movie studio, producing a massive roster of new content that is creating a media library. That content is a huge retention driver for existing subscribers, and a big lure for new ones. And I believe that’s likely to remain so for years to come.
Films such as Roma and the Bird Box, as well as TV shows like Stranger Things and Black Mirror have built devoted followings. They’re also helping Netflix rack up dozens of Emmy and Oscar awards each year. More than 80 million people watched Bird Box in just its first four weeks following release.
Netflix’s CEO Reed Hastings says this steady stream of fresh content is a key reason why the firm is clearly pulling away from the pack. Those other firms are not even on his radar. “Our focus is not on Disney, Amazon or others, but on how we can improve our experience for our members,” he said.
Netflix’s very strong results, which saw a 35% sales jump (to $16 billion), marks yet another year of rock-solid execution. And the firm is morphing into a profit powerhouse. Its adjusted earnings were $1.6 billion in 2018, a figure that should swell to $3.8 billion by next year.
So, the next time the media make a big ruckus about the streaming video war, just ignore them.
It’s not even close.
Only one firm in this category has a large and growing foreign audience, combined with a deep roster of original content and unmatched pricing power.
That’s Netflix, and it remains a great long-term play that you can count on to help build your net worth.
And speaking of long-term plays that build your net worth… several audits by the U.S. Inspector General have found extraordinary errors in the processing and payment of Social Security checks.
Of course, we spend our working lives contributing to Social Security, in part to pad our retirements. That’s why it’s especially frustrating to hear about these audits. See, for the last 33 years, an enormous group of recipients has been drastically underpaid.
But most of the victims don’t know they could be owed money – up to $23,441. Imagine what that chunk of change could do for your family right now.
See you back here soon.