Companies that have OPTIONS to lean on during tough times are worth investing in. Here’s why!
about investing because we believe diving into the world of investments can help you attain wealth creation and achieve financial freedom. Today, we will talk about a principle that will help you navigate the market regardless of its current state. Continue reading to know more about “optionality” and why you need to invest in companies that possess this characteristic.
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Companies that have OPTIONS to lean on during tough times are worth investing in. Here’s why! Netflix entered 2024 as the leader in the battle for eyeballs and ad dollars despite facing stiff competition from rivals like Disney and Warner Bros. Entertainment. According to Bank of America media analyst Jessica Ehrlich, “it has become increasingly clear that Netflix has won the ‘streaming wars.’” This statement comes as large media companies are reevaluating the money they’ve spent on their own streaming services. Netflix’s position as a market leader in the streaming industry has never been clearer. However, this success didn’t happen overnight.
Founded in 1997, the company’s primary strategy was to rent out DVDs by mail and for nearly a decade, the firm dedicated its resources on this service. By 2007, the company unveiled its streaming service, enabling users to watch movies and TV shows online. It was due to this shift that the firm managed to break USD 1 billion in annual revenue. Netflix had grown its annual revenue to USD 2 billion by 2010. A year later, this figure surpassed USD 3 billion… and by 2017, the company had increased its revenue tenfold. Anyone who saw the streaming platform’s explosion would have thought the company was just in the right place at the right time. However, it wasn’t luck that propelled the company to success. It studied its customers’ preferences since it began renting out DVDs in 1997. That’s why when the firm launched its streaming service, it had years of data—its genuine asset—to rely on in choosing which content to offer. Netflix also experimented with different business models for years as the firm tried everything, from changing its delivery methods to offering multiple types of subscriptions. The company even opened its own production studio in 2009, enabling it to thrive when companies like Disney and NBC pulled their titles from the streaming platform years later. Investing in “Optionality” Netflix came out on top and continues to enjoy the success it has today because of its “keep your options open” approach. Said in another way, this approach is what we call “optionality.” The competitive landscape changes fast, not only across streaming, but also in other industries. That’s why it is crucial for companies to have options they can lean on to ensure they remain competitive and profitable. “Optionality” reduces risks and fosters stability. Ultimately, it’s what enables long-term success in ever-changing markets. So, how can you apply This strategy to your investments? During times of uncertainty, you should invest in businesses that have multiple revenue streams. Put your money in firms that know their genuine assets and understand how to turn them into profit. This strategy is far less risky than relying solely on one core product or industry because companies with “optionality” are less likely to fail. Since these firms have plenty of ways to reap profits, their shares are likely to be more stable. We expect the markets to be highly unpredictable this year, so make sure you’re investing in companies that prioritize “optionality. Hope you’ve found this week’s insights interesting and helpful. Did you know that some people are born with an “11-month advantage”? Learn more about how to be your own best benchmark in next week’s article! |
