Hey, NFLX Investors! Don’t Expect Netflix to Be a $700 Stock Again. Here’s Why.

Stock Market

Netflix (NASDAQ:NFLX) stock is making a strong run higher again, up 170% from last year’s lows, but they can only go so far. Netflix recent earnings report shows why it is the industry leader. Good content reconnected with viewers and offset any ill will created by raising prices and cracking down on password sharing. 

Yet management also wants Netflix to become a lifestyle company. There’s a big difference between what Disney (NYSE:DIS) does and what Netflix wants to achieve. So while its streaming efforts ought to keep Netflix stock on an upward trajectory, the plan for a new so-called Netflix House will ultimately keep NFLX stock from achieving its full potential.

A Closer Look at NFLX Stock

Netflix performance this past quarter occurred despite its actions to raise prices and limit account sharing. It could just as easily be said it was because of them. Revenue grew 8% year over year to $8.5 billion while paid memberships grew 9%. It added 8.8 million new accounts in the period compared to just 2.4 million last year.

That strength was because of its original and licensed content. Shows like Suits, One Piece, and Top Boy show what Netflix can achieve when it puts its mind to it. It no longer needs to push quantity over quality. 

In particular, Suits was unique. The show originally aired on Comcast‘s (NASDAQ:CMCSA) USA Networks in 2011 and ran for nine seasons before ending in 2019. Amazon (NASDAQ:AMZN) licensed it for Prime back in 2013.

Yet it wasn’t until Netflix licensed it this past June (when it also began running on the Peacock service) that it really took off. According to Nielsen data, Suits has been the top-rated streaming show every single week but two since it debuted on Netflix.

It’s clear only Netflix can create such a cultural phenomenon, and that’s why its focus should remain on streaming video.

Positioned for a Bad Experience

Yet Netflix has big ideas. It plans to open brick-and-mortar locations it calls Netflix House. There, fans of the streamer can buy clothes, dine, enjoy entertainment, and otherwise have “experiences.” It plans to open them in 2025.

Netflix vice president of consumer products Josh Simon told Bloomberg last month, “We’ve seen how much fans love to immerse themselves in the world of our movies and TV shows. And we’ve been thinking a lot about how we take that to the next level.”

And therein lies the problem. Thinking of Netflix as a lifestyle brand is misguided. Viewers go where the content is. When Netflix was pushing shows to its service that no one cared about, it lost millions of viewers. There are plenty of streaming services to choose from. To think they’ll want to live the Netflix life is a mistake.

Netflix is not Disney. The House of Mouse cultivated a lifelong connection with consumers. Little girls want to be Disney Princesses. No one thinks of themselves as a Netflix Suit. Yet even Disney hasn’t figured out the magic formula to making a profit on streaming. Disney+ still lost almost half a billion dollars in its fiscal fourth quarter.

Netflix, on the other hand, is profitable, and it finally cracked the Rubik’s cube of consumer streaming demand. It should stick with it. Running off on tangents like developing “experiences” for viewers will undermine the effort. Netflix stock may be running hot now, but investors should avoid getting caught up in the hype.

On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Rich Duprey has written about stocks and investing for the past 20 years. His articles have appeared on Nasdaq.com, The Motley Fool, and Yahoo! Finance, and he has been referenced by U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, USA Today, Milwaukee Journal Sentinel, Cheddar News, The Boston Globe, L’Express, and numerous other news outlets.

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