Netflix (NASDAQ: NFLX) stock has been under pressure lately. The company thrived at the pandemic onset when hundreds of millions of folks rushed to join streaming services while they were encouraged to stay home.
Simultaneously, several production studios launched their own streaming services in response to the surging customer demand. Now that most businesses have reopened, Netflix is facing a reduction in demand. However, the new competition that entered during the pandemic is still there. Slowing demand and rising competition are signs of trouble, and Netflix stock has been down 41.8% in the last three months as a result.
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Netflix's total addressable market reaches one billion households
Still, Netflix CFO Spencer Neumann attended an investors conference on March 8 where he gave a rosy outlook for the streaming pioneer. While investors and shareholders are panicking over rising competition and slowing growth, the CFO remains confident in the company's future and discussed a path to 500 million subscribers during the conference:
So if we can get to that level of penetration around the world, again, by the time we get there, there's probably 1 billion connected TVs around the world. And you can see our penetration in the U.S. that you kind of do that math, we're roughly 60% penetrated today. So that pretty quickly gets us to business that's over 0.5 billion members.
In other words, the CFO believes that if Netflix can replicate the level of success it has in the U.S. and Canada to the rest of the world, it can reach 500 million subscribers. To put that figure into context, Netflix boasted 222 million subscribers as of Dec. 31. Getting 500 million accounts would mean more than doubling the size of its subscriber base -- a difficult feat, to be sure. Another challenging task would also entail capturing 50% of its total addressable market.
Before the entry of several noteworthy competitors, investors were more confident in Netflix's path to success. Streaming services are far more convenient and often less expensive than traditional cable TV. For instance, you can take your Netflix subscription anywhere you carry a smartphone and access the internet. That's not the case with cable TV. So when traditional TV was Netflix's competition, its growth was not in doubt.
However, now that it is competing with nimble rivals such asThe Walt Disney Company (NYSE: DIS), which offers Disney+, Hulu, and ESPN+ at lower average prices than a Netflix subscription, the field is more level. When Netflix missed its subscriber estimate by 200,000 names in the fourth quarter of 2021 and guided to less than expected growth in the first quarter of 2022, investors attributed the trouble to competition instead of volatility.
There's room for more than one winner
Nevertheless, Netflix could very well reach the 500-million-subscriber milestone the CFO outlined. The low-cost nature of streaming services means that households will likely subscribe to several at once. This leaves room for more than one winner. That's great news for Netflix, which is already the industry leader.
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Parkev Tatevosian owns Walt Disney. The Motley Fool owns and recommends Netflix and Walt Disney. The Motley Fool recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.
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