Netflix (NFLX 3.07%) has been a pioneer in the streaming industry. The tech giant helped put brick-and-mortar companies that offered DVD rentals like Blockbuster out of business. However, Netflix is now working on opening brick-and-mortar stores of its own. The company is planning on debuting the so-called Netflix House in 2025. Let’s find out what this could mean for Netflix and its shareholders.
A potentially lucrative opportunity
Netflix knows that fans tend to get immersed in the shows they watch and love, and this isn’t something the company was the first to discover. Theme parks exist for a reason. Over the past few years, Netflix has experimented with provisional pop-up stores around the world where visitors got to experience activities inspired by some of its successful shows.
Now, the company wants to take it one step further and create permanent stores where viewers and fans will be able to engage in various themed activities, eat and drink, shop for themed souvenirs, and more. Netflix plans to open the first two of these stores in the U.S. in 2025 and expand worldwide if they prove popular.
Now, there is a reason companies often pay famous people small fortunes to advertise their products. Consumers tend to be more willing to buy things — and to spend more on them — if they are promoted by someone they know and love. Characters, famous items, and themes from television series may or may not always count as “celebrities,” but they will undoubtedly pique the interest of hardcore fans, opening up the opportunity for Netflix to charge handsome sums of money for the privilege to visit one of the company’s Netflix Houses.
Here’s another aspect of this initiative: It could help further spread the word about Netflix’s creations. People may walk into a Netflix House without prior knowledge of the featured series. After the experience, they might be tempted to stream the show.
Here’s what matters most for Netflix
Here’s an important aspect of this new strategy Netflix is looking to implement: Its success will still largely depend on the company’s ability to create or carry successful series. To state the obvious, Netflix will remain a streaming company. And investors have every reason to look positively at Netflix’s prospects in this field. As the company’s third-quarter results once again showed, Netflix is the leader in streaming.
Revenue of $8.5 billion was up almost 8% year over year, while the company added 8.76 million net new subscribers during the period, compared to just 2.41 million in the third quarter of 2022. Netflix’s recent attempts to crack down on password sharing by making main account holders pay extra for sub-accounts — and its decision to introduce a low-price ad-supported tier — may have had a negative impact on subscription growth. But as far as we can tell, the positive impact has been much greater, at least so far.
Further, the company’s net income and free cash flow also moved in the right direction. Earnings per share grew by about 20% to $3.73, while free cash flow of $1.9 billion quadrupled compared to the year-ago period. Some may point out that Netflix captures less television viewing time than Alphabet‘s YouTube in the U.S. In September, Netflix was responsible for 7.8% of viewing time compared to YouTube’s 9%. In total, all streaming services added up to 37.5%.
However, the two platforms have important differences. Most of YouTube’s content comes from third-party, independent creators. Among streaming platforms that are more comparable to Netflix, Amazon Prime Video was the runner-up with 3.6% of television viewing time in September in the U.S. That’s not even close to the leading Netflix service. So, the company does remain the biggest player in streaming, something that will make its new chapter, the opening of Netflix House, all the more exciting.
In my view, this constitutes one more reason to buy shares of the company.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Prosper Junior Bakiny has positions in Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, and Netflix. The Motley Fool has a disclosure policy.