Does This News Make Netflix Stock a Buy?

Netflix (NASDAQ:NFLX) has not performed well over the past year. The company's financial results haven't been strong, engagement on its platform isn't meeting market standards, and competition in the streaming industry is heating up. Can Netflix bounce back and still perform well over the long run? Recent reports suggest that the company is actively looking for ways to improve the business, and one initiative it is considering could be a game changer. Let's discuss what Netflix's management is cooking up behind the scenes and what it means for the company's future.

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Netflix is considering a shift in strategy

Netflix no longer publishes its number of paid subscribers every quarter. But according to some estimates, it has 325 million paid subs and is well ahead of its peers. That may be why the company is considering opening up its platform to some of its competitors. Netflix is apparently weighing signing deals with other streaming services to allow its members to subscribe to and watch those services without leaving the Netflix app. So, Netflix could become a go-to streaming hub.

This would be a reversal in Netflix's strategy, since the company had previously resisted this idea. For instance, in the press release announcing its financial results for the second quarter of 2024, Netflix said:

We haven't bundled Netflix solely with other streamers like Disney + or Max because Netflix already operates as a go-to destination for entertainment thanks to the breadth and variety of our slate and superior product experience.

How it could impact Netflix's financial results

If Netflix moves ahead with these plans, it could have a massive impact on the company's financial performance. For one, it would almost certainly increase engagement on its platform since some of the time subscribers spend on other streaming services will be redirected to its app. Sure, they wouldn't be watching Netflix's original shows if they were merely accessing another platform through its app. But this spike in engagement will make Netflix a much more attractive advertising platform and boost ad-related revenue. This business still accounts for a fairly small percentage of the company's top line.

Netflix estimates it will generate $3 billion in ad sales this year, roughly double last year's total. But that represents slightly less than 25% of the company's second-quarter revenue. Ad sales would become a much more meaningful growth driver with the new strategy the company is considering. And there might be other benefits. Netflix could charge other streaming services for access to its customers, creating a high-margin revenue stream. This initiative may also give Netflix access to even more data to improve its recommendation algorithm and content strategy, thereby strengthening its core business.