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For most of October, November, and December, Netflix, Inc. (NASDAQ: NFLX ) didn't go anywhere. In the wake of Walt Disney Co (NYSE: DIS ) acquiring assets from Twenty-First Century Fox Inc (NASDAQ: FOX ) and prepping a big over-the-top entertainment offering, NFLX stock struggled to do much of anything besides go sideways as investors fretted over elevated competition risks.
But now NFLX stock is shaking off those concerns in dramatic fashion. Netflix stock has soared nearly 14% higher in 2018 (less than two weeks) as investors have digested a swirl of positive data points. Those data points come together to show that Netflix won't be giving up its perch atop the OTT entertainment space any time soon.
Does that mean that NFLX stock can keep grinding higher? Yes. Here's why.
Multiple Catalysts Are Converging
Everything is going right for Netflix right now.
First, the Street is growing more bullish than ever. Multiple analysts have upgraded NFLX stock recently, and analyst upgrades are always a nice tailwind for stocks.
Second, big tech is back in fashion. After a rough November and December, the so-called FANG stocks have rallied big to start 2018. Broad-based strength across big tech names implies that this sector's long-term growth narrative remains in place.
Money won't stay away from these names for long. Consequently, sticking with the FANG trade remains the profitable thing to do at this point in time.
Third, Netflix is proving out a method of data-driven entertainment production that could allow the company to extend its dominance in the media market. Netflix's most recent headline original, Bright , was apparently the product of meshing together the most popular searches, tags, and genres on Netflix.
Essentially, Netflix took whatever searches were most popular on Netflix (hypothetically say "police movies", "mysteries", and "Will Smith") and crafted a movie around those searches.
And while Bright wasn't a big hit among critics, it was highly anticipated, drew massive viewership numbers , and received decent user reviews . In other words, the first take on data-driven production wasn't a massive hit, but it showed signs of success for what could be a burgeoning business for Netflix.
Because Netflix has more than 100 million subscribers, the platform has a presumably consistent stream of movie-preference data for more than 100 million people. No one else has that data. MoviePass is trying to get it, but they are far from reaching Netflix's size.
If Netflix can successfully leverage that data to create the right content at the right time, then Netflix could dramatically extend its dominance in the secular growth OTT entertainment market.
Fourth, speaking of dominance, it looks like Netflix is kicking Hulu's butt. Hulu just reported subscriber numbers for the first time in May 2016, and they weren't that impressive.
From May 2016 to January 2018, Hulu grew its subscriber base by just over 40% from 12 million to 17 million. During that same time, Netflix went from roughly 83 million subs to 115 million subs (using the Q4 guide number), which is growth of just under 40%.
In other words, Netflix and Hulu are growing their user bases at essentially identical rates. But Netflix is nearly seven times as big. That is a bullish sign that Netflix is already extending its dominance in the OTT entertainment market.
Fifth, the new David Letterman show on Netflix could catalyze big growth for the streaming company. As I've said before, when it comes to Netflix, it is smart to follow the content.
Strong original content usually leads to big growth. The Letterman show (which debuts tomorrow with an all-star guest list that includes former President Barack Obama, George Clooney, and Jay-Z) is no exception.
Sixth, Apple Inc (NASDAQ: AAPL ) will come into a lot of cash soon thanks to tax reform, and many analysts think that they will put that cash to use via acquisitions.
Whether or not Apple acquires Netflix remains a wild card. But with Netflix extending its dominance at the same time that Apple is coming into a bunch of free cash, the likelihood of such an acquisition has never been larger.
Bottom Line on NFLX Stock
Put it all together, and it is easy to see why NFLX stock has soared to start the new year.
This rally will keep going. Netflix has an unparalleled ability to leverage data to deliver the right content at the right time. The more they do that, the more they will extend their dominance in the OTT market. The more they do that, the higher NFLX stock will go.
As of this writing, Luke Lango was long NFLX and DIS.
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