Among the "FAANG" stocks, Facebook (now $Meta Platforms(META.US)$ ）、 $Apple(AAPL.US)$ 、 $Amazon(AMZN.US)$ and $Alphabet-C(GOOG.US)$ has been upgraded to the new elite club, with only the solitary "N" remaining in place. Only Netflix did not enter the Magnificent Seven of the U.S. stock market.

Although market attention is not as high as before, $Netflix(NFLX.US)$ it still achieved a historic high in August, breaking the 21-year record.

Netflix's stock price experienced a painful retreat after November 21, falling more than 70% at one point. Subsequently, the company staged an amazing reversal, climbing over 300% from its low point and reclaiming the $700 mark.

What has the company experienced on this rollercoaster journey? How should we view the return to the peak and what comes next? This week's 【Opportunity Express】 will answer these questions.

A dual approach to solve password sharing.

For streaming platforms, password sharing is an unavoidable nightmare. Users' "free-riding" behavior impacts subscription revenue and acquisition of new customers, breaking the positive cycle of content generated from membership services. What’s more complicated is that a heavy-handed approach like account suspensions could lead to user attrition.

Already in early 2022, research institutions indicated that although the growth of paid users for streaming services was rapid, the growth rate of password sharing behaviors was even more astonishing, potentially causing Netflix billions of dollars in losses.

Also in that year, Netflix experienced a rare decline in subscription users. At that time, Netflix stated that aside from 0.222 billion paying households, over 0.1 billion households accessed its services by sharing someone else's password.

According to a Statista survey in 2022, 17% of respondents accessed Netflix using someone else's password, while 11% used accounts not belonging to family members. The market began to question the company's growth potential, and with the Federal Reserve starting a rate hike cycle, stock prices entered a freefall mode.

During the period of rapid growth, Netflix actually did not pay much attention to this behavior and even suggested, "Love is sharing a password." However, faced with the progressively declining Company Business Data, the company recognized that this issue needed to be addressed.

Netflix has shown considerable flexibility on this issue:

On one hand, it strengthened monitoring of user locations to determine if users sharing accounts are from the same household, and limited the number of simultaneous viewers allowed per account. If related regulations are violated, the account will be suspended. These users will face three options: create a new account, pay $7.99/month to obtain additional family member status on the original shared account, or appeal for remote login.

On the other hand, Netflix launched a cheaper ad-supported plan in November 2022, priced at $6.99/month, to attract price-sensitive users while expanding advertising revenue. Initially, the company emphasized user experience, with no ad insertions in the content.

Since the launch of the new plan, subscriptions have experienced explosive growth, with many freeloaders opting for the basic ad plan. By January of this year, users of the ad-supported plan had exceeded 23 million. Netflix co-CEO Peters stated that the company decided to stop disclosing quarterly paid user numbers starting in 2025, focusing more on advertising and new business.

The approach of 'combining rigidity and flexibility' has proven successful, with Netflix returning to a high growth trajectory. eMarketer Analysts noted that the number of new subscription users exceeded many analysts' expectations. This also suggests that password sharing is more prevalent than previously thought, as Netflix continues to convert free viewers into paid users.

Performance was outstanding.

On July 18, Netflix released its Q2 earnings report. Revenue grew by 17% year-on-year to $9.559 billion, achieving a GAAP net profit of $2.15 billion, an increase of 44.3% year-on-year, with Non-GAAP EPS at $4.88.

Both revenue and profit performances exceeded Wall Street's consensus expectations. Notably, user growth performance was outstanding, with a net addition of 8.05 million subscription users in Q2, compared to a market expectation of 4.7 million.

Data source: Futubull. Data as of Q2 2024. The content of this chart is for reference only and does not constitute any investment advice. Past performance does not indicate future results, and the market carries risks; investment should be approached with caution.

Analysts at Bernstein stated that user growth performance in 2024 will be strong, with targets that seemed almost impossible now within reach. Users in mature markets like the United States continue to grow rapidly, while international market growth is equally impressive, with non-English content stimulating membership growth in markets such as France, South Korea, and India. This trend is expected to continue, with the institution forecasting that Netflix's net new users this year could reach 30 million.

Looking back at the company's development history, Netflix has undergone several significant strategic transformations since its establishment in 1997. It shifted from DVD rental to streaming business, then from content purchasing to content production, successfully expanding from the U.S. market to a global presence. Most recently, Netflix successfully resolved the challenges brought about by the password sharing issue by combining blocking and tolerance strategies, demonstrating its ability to cope with shocks over time.

Technical analysis and possible strategy.

From a technical perspective, Netflix's stock price has generally been in an upward channel since hitting bottom in 2022. In October 2023, it briefly departed from this channel, touching the MA250 bull-bear threshold before regaining upward momentum. In early August this year, during a market sell-off, it also performed relatively steadily, rebounding after reaching the lower edge of the channel, with recent stock prices slightly adjusting after hitting a historical high.

Data source: Futubull. Data as of market close on August 26, 2024. The case is for illustrative purposes only and does not constitute any investment advice or guarantee.

The options volatility analysis tool indicates that Netflix's volatility is currently low. As of August 27, the IV (implied volatility) level is 11, with an IV percentile of 20%.

Implied volatility values, IV rankings, and IV percentiles are theoretical estimates; actual market conditions may not always align with the theoretical information shown. Investors should act cautiously when making investment decisions and use multiple sources of information, as there is no guarantee that using tools or information provided on the Futubull application will lead to investment success or reduce investment risk.

In a risk-neutral situation, low implied volatility indicates that the premium is relatively low, theoretically favoring the options buyer. If the company's development is viewed positively, buying call options (Long Call) could be considered. If a pullback is anticipated, buying put options (Long Short) could be an option.

For investors holding the underlying stock, if it is believed that the market will remain volatile without a significant rise in the near future, a covered call strategy can be adopted to reduce investment costs. Of course, the risks of options are higher than those of the underlying stock, and their volatility is also greater. Interested investors are advised to learn relevant knowledge systematically before trying.

Risk Reminder

User Growth: Although recent growth has been strong, there are also viewpoints that the developed markets have gradually become saturated, and user growth may slow down in the future, with the cost of acquiring new users possibly rising.

Market Competition: As Netflix's advertising package gains traction, other streaming companies are also following suit. Competitors such as Disney+ and Apple TV may weaken the company's market share.

International Market Expansion: The international market is an important growth point for Netflix in the future, but different countries and regions have different regulations and cultural differences that may impact future expansion plans.

Risk Disclosure: This content does not constitute a research report and is for reference only, not to be used as a basis for any investment decision. The information included herein is not a comprehensive description of the securities, markets, or developments mentioned. Although the sources of information are considered reliable, there is no guarantee of the accuracy or completeness of the above content. Furthermore, there is no guarantee of the accuracy of any statements, opinions, or predictions provided in this article.

Options trading carries a high risk and may not be suitable for all investors. The characteristics of options can lead to losses exceeding the principal. Before trading options, please read our "U.S. Options Product Disclosure Statement," "U.S. Options Target Market Confirmation Letter," and documents published by the Options Clearing Corporation (OCC) regarding the "Characteristics and Risks of Standardized Options."