Everyone knows the story at Netflix (NFLX), which began in 1997 as an e-commerce platform for rental DVDs, notes Tony Daltorio, editor of Market Mavens.

In 1999, the company moved to a subscription service. But it wasn't until 2007 that CEO Reed Hastings completely transformed the company, launching the online streaming service we know today.

By 2013, Netflix's free cash flow was $43.7 million, but as the cost of content production started soaring, cash flowing out of the business turned into a flood. In 2016, the cash outflow was $1.58 billion, and in 2019 it peaked at $3.14 billion!

Wall Street ignored this problem, however, because the Federal Reserve policy of near-zero interest rates and ample liquidity meant capital was dirt cheap and easy to obtain. And besides, Netflix was adding more than 20 million customers a year.

Fast forward to today, and Wall Street has bailed on this stock. Growth has come to a halt — and rising interest rates mean Wall Street no longer values growth at all costs. The end result: the stock is down more than 60% year-to-date!

In an attempt to bring investors back into the fold, management has promised to focus more on free cash flow. And Netflix says the "multi-year evolution of its content model" is about to generate solid profitability, since it is through the most cash-intensive part of that transition.

So what will this "new" Netflix look like? The first feature will be advertising. The ad-supported subscription package will allow users to pay less — but the obvious downside is that they then have to watch ads. Netflix has partnered with Microsoft (MSFT), which will be helping with the technology and marketing side of the ad platform.

If Netflix could transfer half its customers — around 100 million subscribers — to an ad-supported subscription, it would increase its monthly revenue by around $900 million. That would represent a 34% increase from the second-quarter 2022 figures.

The second characteristic of the new Netflix is gaming. This emphasis on gaming comes from the fact that Netflix discovered that there is a large cross-over in Netflix watchers and mobile gamers. Production costs per hour of user consumption are also lower for games than for videos.

In mid-September, Netflix announced a partnership with the French games software company Ubisoft (UBSFY). This will allow Netflix customers to play a mobile version of Assassin's Creed — Ubisoft's most successful game ever — for no extra cost. For avid mobile gamers who already subscribe to Netflix, this is a huge upside, and it may bring in new subscribers to Netflix. too.

Should you invest in the new Netflix? If Reed Hastings gets his new overall strategy right, then the share price's 60%+ fall this year will have represented a great buying opportunity for investors. NFLX is a speculative buy in the $200 to $235 price range.

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