2022 was a terrible year for the media industry companies.

This was because competition among streaming services has come to an all-time high and consumers are getting pickier about their number of subscriptions. On top of that, companies are contending with lower ad revenue and more cord cutting.

When Netflix (NFLX) reported it lost subscribers in the first quarter of 2022—the first time in more than 10 years—the news sent a shockwave throughout the sector. The company blamed heightened competition, and began exploring a cheaper, ad-supported option for customers. Since then, other media companies have followed suit.

The video streaming market is currently being reshaped after last year’s collapse in investor sentiment toward these companies.

Both Netflix and Disney (DIS) have changed chief executives and stripped subscriber growth forecasts from their results. The focus now is solely on profitability, which may put Netflix ahead of its competition…

Netflix is staging a recovery from the share price slump suffered at the beginning of last year. In April 2022, its market capitalization was 70% below its 2021 peak. However, after a series of positive results, the company’s stock has regained some of its lost luster.

In the fourth quarter of 2022, Netflix added 7.66 million net subscribers, well ahead of guidance of 4.5 million added, to reach 230.75 million subscribers. This marked the second straight quarter of subscriber growth, and a 4% year-on-year increase. That’s quite a change from the two quarters of subscriber losses at the beginning of last year which led to the steep selloff in the stock.

The stepping down of founder Reed Hastings is highly symbolic of the company’s move away from a growth-at-all-costs strategy. The new management team, with co-CEOs Greg Peters and Ted Sarandos, is taking some steps to improve the company’s cash flow. For example, Netflix has plans in place to cut down on password sharing.

While this may lead to cancellations over the short-term, it’s a smart longer-term strategy. Despite the risk of losing some customers, the move should turn out to be cashflow positive.

Netflix estimates around 100 million people use its service without paying for it. That huge number is why many Wall Street analysts are confident a large chunk of money will come to Netflix once these viewers become monetized. FactSet reports that estimates for Netflix’s free cashflow will more than double to $3.15 billion this year, and then rise again to $4.7 billion in 2024.

The biggest problem for Netflix’s cashflow though remains the cost of developing content and using technology. In 2022—despite trying to keep costs in check—the company spent 19% more on technology and development.

To bring this under control, Netflix has been experimenting in Japan with the usage of generative artificial intelligence (AI). Earlier this year, it produced an anime show called Dog & The Boy, which caused an outrage among some because it incorporated AI-generated art.

Netflix’s Outlook

While Netflix’s outlook is improving, there is no denying the U.S. streaming market is saturated. That means if any further growth does come from Netflix, it will come from overseas. Already, Netflix has more customers outside the U.S. than inside the country.

A particularly strong region for Netflix is Asia. The market research firm Ampere Analysis explains that: “[Asia-Pacific] is likely to represent Netflix’s biggest growth potential in the future, accounting for over 60% of net additions to its global subscriber base over the next five years.”

Although that pricing in places like India is far below pricing here in the U.S., Morningstar forecasts that—on the international side—increased customer penetration will generate average revenue growth of 11% in Europe, 7% in Latin America, and 15% in the Asia-Pacific through 2027.

Overall, Morningstar forecasts average revenue growth of 9% for Netflix, with the operating margin expanding to 25% in 2027 from 21% in 2021, after dipping to 18% in 2022.

Netflix has been targeting $3 billion-plus free cashflow in 2023, versus $1.5 billion in 2022, as the five-year build of the studio to produce a majority of original titles (60% of content assets) are now past the most capital-intensive part of the process.

The main takeaway is that Netflix is now a company that has swapped its role as a disrupter for that of being the dominant incumbent… it is now the only profitable big streaming service in the world, with a subscriber base of 231 million and annual content budget of roughly $17 billion.

All of the factors discussed make Netflix a speculative buy anywhere in the $290 to $320 range.