Netflix Post-Earnings/Crash
(Response to: https://www.wsj.com/articles/netflix-earnings-q1-2022-11650325682?ref=biztoc.com&curator=biztoc.com&utm_source=biztoc.com)
Netflix absolutely crashed yesterday. Down about 30% in one day, and 62% YTD, it is looking rough for the stock price, a stock that was looked at as a blue chip just a year ago. Today I want to look at some of the reasons that Netflix thinks that they are in a little bit of trouble, and what they want to do going forward.
“The company blamed password sharing among its members and increased streaming competition for pressuring revenue growth. Netflix estimated that besides its almost 222 million paying households, the service is being shared with an additional 100 million homes including 30 million in the U.S. and Canada.”
- Woah. There are levels to this stat: what happens if Netflix says: “No more sharing subscriptions” will people leave? Will those people buy their own subscriptions and stop taking their friends Netflix. It is a touchy situation. The company that proudly touted and supported password sharing, arguably making it a feature for users who paid, now wants to pull it back. This could actually work. An extended free trial for millions of people, perhaps they will look to say thank you to Netflix by buying a subscription, but then Netflix has to ask itself if its paid users are even happy with their product. They just LOST 200,000 subscriber, when they thought they would gain 2.5 Million. There might be a disconnect here.
There is more competition than ever for Netflix, and it is only going to rev up.
(Source: The Subscription Economy Index)
TOP Manufactures in Streaming Services Market are: -
● WarnerMedia
● NBCUniversal
● iflix Ltd
● Digital Theatre
● Kanopy
● Amazon
● Nine Entertainment
● The Walt Disney Company
● Televisa
● Netflix, Inc
● Apple
● Ellation Inc
● ABS-CBN Corporation
● MultiChoice Group
● Times Internet
● ITV Studios
● ViacomCBS
● BroadwayHD
● L.A. Theatre Works
● PCCW Media Group
Meanwhile streaming services are growing at about a 12% CAGR per year, and projected to continue to do that for the next 6 years.
And “The UBS financial services firm predicts that this “subscription economy” will grow to $1.5 trillion by 2025, more than double the $650 billion it’s estimated to be worth now.”
(https://www.washingtonpost.com/business/2021/06/01/subscription-boom-pandemic/)
Netflix right now is looking like it is at the bottom of the list in terms of ‘important recurring monthly purchases’ as a subscriber myself, I find myself switching between whatever is on in season, so if I want to watch ‘The Boys’, I will buy Amazon for 2 months, if I want to watch GoT or whatever HBO has on now that I am interested in, (currently nothing to be honest), I will go and switch to their service, same for Hulu, etc. Although with something like Amazon, I also have prime and make purchases through them, so they offer something more, unlike Netflix, which just offers streaming. This is simple stuff, that isn’t new, but as more competition appears, this will be what people do more and more, you can almost see the downward spiral in real time. Netflix makes a lot of money though, over 7 billion in revenue yearly, at one point, so they need to ask how they want to reinvest that money, do you begin to expand out of just streaming? or double down?
Final point: they want to release an ad-based, free service. This has worked for firms in the past, but as a long-time subscriber of Netflix, you have to ask yourself if you are willing to go against your old mantras so rapidly when the money begins to run dry. They were the creator of the subscription film and television service, they were vehemently against ads, they wanted you to share your password, now that the money is beginning to run dry, and real competition is popping up, do you chuck all of your old principles out the window? And do you think your subscriber base will care, or will they look at you as the next firm who really didn’t care about their morals, but just said they did when the money trees were lucious?
