Wave of White Flag

                     

Netflix has faced the major challenges of growing competition, international growth and content fragmentation set for itself. Contrary to a red flagged year of 2019 for the company, Netflix has turned the corner in this turbulent year of 2020, with free cash flow in continuous positive.

Last year, Netflix's biggest problem was that it was increasingly looking to acquire new subscribers. Marketing and content streaming spending increased from $308 / new subscriber in 2012 to $581 / new TTM subscriber. Meanwhile, revenue and subscriber growth were declining.

Feeling everything smell like despair, Netflix's latest strategy was to spend a lot of money (and spend more money) to hire great writers and producers to create original content for the platform. Something risky, in fact. More recently, the company has hired a good pair of screenwriters, Game of Thrones showrunners David Benioff and DB Weiss for a $200 million deal. It also kept the shares at a low price, to attract new customers to stickily increase in the future.

However, the Netflix assessment does not look like a TV network. The company has a corporate value of $150 billion, about 5x the value of the largest independent TV network, CBS . Some people may mock the comparison of these two companies, but they earned the same amount of revenue last year ($15 billion), and CBS generated $1.7 billion in free cash flow for Netflix - $4.5 billion.

For a long time, many investors thought Netflix would be bought by a larger competitor. The only real candidate left to buy Netflix would be Apple (AAPL), but that hardly seems likely given the company's history. Apple's largest acquisition to date has been Beats Electronics, for $3 billion, or approximately 1/50 of Netflix's price. Unless Netflix's stock drops in large amounts, which for this year is far from likely.

The generic strategy is still cost leadership, which in the Michael E. Porter model ensures competitive advantage through minimized costs and, frequently, minimized sales prices.

New subscriber growth is still an obsessed-over data point for Netflix investors -- and it could remain vexing as Netflix continues its aggressive charge into international markets. In realistic forecasts, an increase of "only" 2.5 million users is estimated for the next quarter of this year.