expand/collapse risk warning

Trading financial products on margin carries a high degree of risk and is not suitable for all investors. Please ensure you fully understand the risks and take appropriate care to manage your risk.

Trading financial products on margin carries a high degree of risk and is not suitable for all investors. Please ensure you fully understand the risks and take appropriate care to manage your risk.

Your capital is at risk.

Regulator:

×
CySEC

Skilling Ltd, is regulated by the Cyprus Securities and Exchange Commission (CySEC) under CIF license No. 357/18

Continue
FSA

Skilling (Seychelles) Ltd, is authorized and regulated by the Financial Services Authority (FSA) under license No. SD042

Continue
Market Insights

Netflix Adds Subscribers - Sees Growth Opportunity Ahead

Blog Images - Skilling (9).png

Netflix earnings were well received by the market. The share price pushed higher to trade +5% in pre-market on Friday AM. The streaming service added 7.7 million subscribers in Q4, well above the projected 4.5 million. Can the positivity last?

image

A strong move up in response to the latest earnings report, but it’s worth noting that this is after-hours trade, a period of reduced liquidity. Nevertheless, the stock looks set to gap up by 5% when the market opens later today.

__So, why the optimism? __

Well, Netflix is making good progress towards a lot of their stated goals. Another quarter of blockbuster content was well-received by audiences. From the shareholder letter:

“In 2022 we premiered many of our most popular series and films in Netflix history, including Wednesday, Glass Onion: A Knives Out Mystery, Purple Hearts, Monster: The Jeffrey Dahmer Story, The Adam Project and Harry & Meghan”

The success of these shows is seen as a big driver of new signups and customer retention:

“We get amazing results when we have a Wednesday, Glass Onion or Monster moment with our members. We believe people typically sign up for a streaming service because they’ve heard about a title “you simply must watch” from a friend, seen the excitement on social media or read about it in the press. Generating conversation is our primary marketing goal because we see that it drives acquisition and encourages existing members to watch more, which in turn helps with retention.”

Any negative coverage of Netflix as a business rarely features their content offering. There’s little doubt that the company produces what subscribers want to see. The bigger questions always surround the company’s ability to turn that popularity into profit.

Netflix is rolling out plans to increase overall revenues, and these are a genuine litmus test. Advertising as a revenue stream is likely to take some time to really pick up. The company is already “falling short of ad-supported viewership guarantees made to advertisers and allowing advertisers to take their money back for ads that have yet to run, according to five agency executives”

A more significant move is the rollout of ‘paid sharing’. According to Netflix internal figures, 100 million households share Netflix accounts, with many of these accounts shared ‘outside’ of the home.

Basically, too many people share accounts too widely, and Netflix wants to crack down on this and convert these non-paying sharers into paid accounts in their own right. The campaign is set to start early in Q1 2023.

The company anticipates ‘churn’ of viewership/engagement as some non-subscribers choose not to convert, but believe they can recover viewers over time as the strong content offering draws them back in.

Perhaps most telling is the last line of this segment from the letter:

“It’s not easy to build a large and profitable streaming business. But we’re competing from a position of strength, as we lead the industry in terms of engagement, revenue and streaming profit. As a pure-play streaming company, we’re also not anchored to shrinking legacy business models, like traditional entertainment firms, allowing us to lean hard into the big growth opportunity ahead of us.”

Is there still a big growth opportunity ahead of Netflix? That’s the big question: Growth or stagnation?

Not investment advice. Past performance does not guarantee or predict future performance.

Related Articles

Apple - iPhone shortage for Christmas

China has long been a bedrock for Apple production. Reliable assembly lines, plentiful cheap labour, established supply ...

Dollar to dominate while fed remain hawkish

As long as the Fed keeps up the hawkish rhetoric, the dollar will continue to dominate. That’s the view of 53 currency s...

Oil: what's the big picture?

The biggest story in oil markets last week was the announcement of the huge US oil release. The move is designed to brin...