Netflix remains the undisputed number one in the entertainment sector. The latest results, published Thursday show that moves like lower-priced ad-supported subscription and the ban on account sharing, which surprisingly received positive feedback from customers, are paying off, with the company adding 8 million new subscribers in the last quarter, writes eToro analyst for Romania, Bogdan Maioreanu.
Thanks to a high net margin and high profitability, Netflix has the financial resources to continue investing in new content and technologies such as AI. These strategic advantages might give Netflix the edge to remain competitive in 2024 and successfully hold its own against its biggest competitors Amazon Prime Video and Disney+ and also HBO Max, Paramount+,Hulu and Apple.
The media consuming landscape has changed a lot in the past years. If in December 2021, streaming was 27% of the total US digital media landscape while cable TV was 37%, in June 2024 the percentages are reversed, streaming leading with 40% with cable dropping to 27% of total screen time. Also, the number of US households having one or more streaming subscriptions increased constantly from 52% in 2015 to over 83% last year. But streaming does not mean only Netflix and the other platforms, including Youtube which is the leader in the segment and has an ad based revenue, with 9.9% of total time. Netflix is second (8.4%) followed by Prime Video (3.1%), Hulu (3%) and Disney + (2%), according to Nielsen.
Inflation and cost of living is also playing an important role in customers’ preferences. According to the latest Digital media Trends survey by consulting company Deloitte, people will likely balance costs and content with ad-supported tiers, contracts, and more bundles. Around 46% of US households subscribe to at least one ad-supported tier of a paid service as part of their lineup, and 57% use a free, ad-supported service. When asked what is important in a streaming service, the first three answers were cost, ease of use and variety of content. Basically this is the answer to the question why streaming services introduced add based subscriptions.
Investors are understanding the challenges but are also seeing the opportunities ahead. And this quarter Netflix delivered. Revenue grew 17% in Q2 (or 22% on a foreign exchange (F/X) neutral basis) , driven primarily by a 16% year over year increase in average paid memberships.
The advertising tier membership tier increased 34% quarter on quarter and the company is building an inhouse advertising platform that will launch in 2025. In fact 45% of all subscriptions are ad based and this solves two problems for the company, a decrease in costs for viewers and an increase in revenue and profit stream for the company. Netflix operating income rose 42% year-over-year to $2.6B, and operating margin improved by nearly five percentage points, to 27.2%.
Guidance wise the company increased their growth target to 14-15% for the whole year. But the stock price lost almost 2% after hours due to the fact that the company’s free cash flow dipped to $1.213B (vs. expected $1.6B) from a year-ago total of $1.339B.
However, Netflix stock gained 32% this year, outpacing Disney (7%), Amazon (21%), Paramount (-20%) and Warner Bros. Discovery (-25%). Netflix is challenging the “Magnificent 7” in terms of returns. However, Netflix is smaller in terms of market capitalisation. Tesla, the laggard of the Magnificent 7, is three times as big.
Netflix is the 19th most held stock globally and 20th by Romanian retail investors on the trading and investing social platform eToro at the end of Q2 this year.
Netflix films Season 2 of Wednesday in Ireland instead of Romania
