The last couple of years have been transformative for streaming platform Netflix (NFLX -1.80%). The company has proven that it can compete with legacy media businesses through the creation of its own original content. Netflix's nascent advertising business has also demonstrated some promising results as the company seeks to diversify its business beyond streaming subscriptions.
One way that Netflix has bolstered both its subscription and advertising businesses is by getting into live entertainment. Let's explore how live events are serving as the next phase for Netflix's evolution, and how one upcoming event occurring on Christmas Day is a major catalyst that could send the stock parabolic going into the New Year.
Netflix and live entertainment are a match made in heaven, and...
As far as live events go, Netflix has deliberately chosen to focus on one specific area for now: Sports. As an avid sports viewer myself, I think this move by Netflix makes complete sense.
Let's face it -- cable is expensive and the average viewer almost certainly doesn't watch every channel available to them. Besides the news, sports, and maybe a couple of network TV miniseries, I'd wager that the average television viewer watches a couple dozen channels at most. While this dynamic has given rise to the cord-cutting movement and propelled streaming platforms into the spotlight, one big challenge remains. What do you do if a big sports event is on TV and you've already canceled service with your provider?
Candidly, I find myself in this very situation quite frequently. Among my friends, the one person who still pays for cable constantly has to volunteer their house and entertain us so that no one misses the big game.
As all innovative companies do, Netflix has identified this issue and made it into a lucrative opportunity. Take boxing as an example. Unlike basketball or baseball, boxing is not the type of sport that is broadcast on a daily basis. For this reason, boxing matches take a long time to prepare -- including training, marketing campaigns, and sponsorships. Given all these moving pieces, boxing matches are almost always pay-per-view (PPV) events. And just like with cable, who actually wants to foot the bill for this?
Well, apparently Netflix does, and I think it's a genius idea. A few weeks ago, acclaimed boxer Mike Tyson fought outspoken YouTuber and social media superstar Jake Paul in an extremely highly publicized event. The catch? You needed a subscription to Netflix to watch.
While this may seem like a bit of a gimmick, I'd encourage you to consider the following: PPV events can often be in the range of $80. As far as Netflix is concerned, it doesn't matter what subscription tier you sign up for -- you'll still have access to the live event. I have Netflix's lowest subscription plan ($6.99 per month) and was able to stream the Tyson-Paul fight live.
Sure, while there isn't much of a difference between the annualized cost of $6.99 per month and an $80 PPV event, keep in mind that I now have access to any upcoming Netflix live events as well and do not have to pay a separate fee for the next live event.
Image source: Getty Images.
... a Christmas surprise is right around the corner
In addition to priceless family time, Christmas Day can come with the sweetener of live sports. In particular, the National Football League (NFL) occasionally broadcasts games on Christmas Day -- depending on what day of the week the holiday tends to fall on.
As usual with the NFL, these games are broadcast nationally in the U.S. on the sports affiliates of Fox and CBS. However, Christmas 2024 has a trick play up its sleeve ... and it involves Netflix.
On Dec. 25, Netflix will be livestreaming the NFL's Christmas Day games on its platform. This is an absolute game-changing event, as the NFL has traditionally been extremely stringent with its broadcasting and licensing arrangements with television networks.
I see this deal as a win-win for both Netflix and the NFL. Both organizations have the benefit of the Christmas Day games being viewable around the globe -- not just in the U.S.
This level of engagement could be appealing for marketers, who subsequently turn to the NFL and Netflix for advertising and brand deals. Lastly, the most obvious appeal for Netflix in particular is for viewers to convert into longstanding subscribers who become sticky within the streamer's ecosystem.
Is Netflix stock a buy right now?
The one minor drawback I see with investing in Netflix pertains to valuation. The company's forward price-to-earnings (P/E) of 45 is expensive. As the graph below shows, the company's valuation has expanded considerably over the last few months and hasn't shown many signs of taking a breather. In fact, the stock has risen about 9% since the Tyson-Paul boxing match on Nov. 15.
NFLX PE Ratio (Forward) data by YCharts.
Despite its pricey valuation, I think Netflix's premium is warranted. The company has put on a masterclass in navigating around other streaming platforms, and I see the entry into live sports as the first stepping stone in its journey to become more involved with live events in general.
In turn, should this strategy drive more engagement in the form of higher subscriptions and increased advertising revenue, Netflix may have just unlocked a virtuous cycle that could fuel its streaming business to the forefront of all media and entertainment.
As with the boxing match, I could very well see Netflix stock popping higher following the NFL games on Christmas Day. To me, Netflix is a terrific buy-and-hold opportunity for investors with a long-run time horizon, and I think that dollar-cost averaging into the stock is the most prudent strategy to build a position.
