Naysayers who doubted Netflix (NFLX) amid heavy competition missed out on the rebound. The stock bottomed at $162.71 and closed at nearly $330 last week. The streaming giant is pivoting to games. Will it work?
Netflix will launch new games monthly on its platform this year. Over 100 game titles would increase the subscriber growth potential. Cautious investors should question Netflix’s gaming prospects. The game quality is inferior to the competition. For example, Netflix is not spending heavily on game developers. As a result, some of the Netflix games run on a browser and are not impressive.
The company is in the early phases of its gaming project. It could still approach an S curve where the business model must change. When it pivoted from DVD movies mailed to customers to streaming, the bet paid off.
Netflix would increase its business durability by continuing its streaming model. It may offer games to current subscribers, increasing retention rates. Customers may pay more for the games and the streaming service.
Netflix is still shaking up its core business to increase margins. It cracked down on password sharing. As customers cancel other streaming services to cut costs, they may keep their Netflix subscription.
Once growth returns, NFLX stock could trade at a double P/E in the 70 range.
