🥤 Before the opening of the USA, Netflix rises in price by almost 10% Number of subscribers increases 📈

Netflix (NFLX.US) It already has almost 261 million subscribers and added 13 million new users in the last quarter of 2023. In doing so, it beat Wall Street’s forecast for additional subscriptions by nearly 50%, and although it is clear that indirectly the number of customer payments increased. increased due to password sharing policy, the numbers show that subscribers are returning to Netflix. An exponentially growing user base means higher profits from incremental monetization. So it’s not surprising that the market turned a blind eye to lower-than-expected earnings. Before the opening session on Wall Street, the company’s shares had already risen in price by almost 10%, adding more than $20 billion to its current capitalization of $215 billion.

Netflix’s fourth-quarter 2023 results convinced everyone on Wall Street that the company had gained a number of competitive advantages and that it would be extremely difficult for competitors to dethrone it. All this at a time when Netflix’s content spending is down more than 20% compared to last year. The panic that occurred in value terms in 2022 has turned into euphoria. The company’s phenomenon lies largely in the platform and how it was able to scale Netflix’s business environment, which increased free cash flow by 660%, from approximately $1 billion in 2022 to nearly $6.6 billion in 2023.

The decision to offer advertising on the platform has attracted investors from the start, but rising margins could mean the process is progressing better than the market expected and that interest in a “cheaper” ad-supported subscription is strong. Moreover, in the US market, the price of $6.99 advertising plans has not been increased since 2022… And Netflix has increasingly compelling arguments to raise this price in the near future and test the “demand threshold” with it. The company has paid WWE Raw more than $5 billion and will make live broadcasts available for 10 years (starting in 2025). Disney is expected to sign a deal with ESPN at the same time, but analysts believe the service will be more expensive than Netflix.

Strong growth in subscriptions suggests that users are liking unique content and series, which may mean consumers will be willing to pay more for them. At the moment we do not see any increase in subscription costs; Netflix likely wants to get as many people onto the platform as possible so it can “pick” them later, raising prices (and bottom line). Therefore, the almost 5% decline in earnings per share did not scare investors (EBIT margin was already more than 3% higher than expected). Free cash flow is increasing and in the fourth quarter was 25% higher than expected at almost $1.6 billion.

How are you?

Unlike its competitors, Netflix is ​​doing very well and liquidity and debt are not an issue. This provides ample opportunity to continue gaining market share. Subscriptions can provide value in terms of price, while competitors cannot afford to go below a certain threshold for fear of business liquidity. There are signs that monetization will go even further. Netflix may periodically request additional payments from consumers for additional services. It is also worth noting that the health of the advertising market is now incomparably better than in 2022, when there were fears of a recession. Today they have given way to the expected “soft landing” of the US economy.

A Blackedge survey of 50 major corporate ad buyers found that up to half would be interested in signing a deal with Netflix. The streaming giant “saved” $3.5 billion on content in 2023, increasing free cash flow. Moreover, despite investing less, it managed to attract millions of paying consumers to the platform. Netflix’s content added to subscription ratio in 2023 was the lowest in more than 10 years (indirectly due to subscription growth). However, the decline in content did not stop the company from growing. Shareholders experienced first-hand how beneficial it is for the company to reduce content costs…

And there’s probably still plenty of room to cut costs. There are no signs on the horizon that the company will end Netflix’s dominance. Optimism is rising, and Netflix is ​​giving the market a solid basis for the stock to trade at a premium to its peers.

Netflix Chart (NFLX.US)

Netflix shares are still trading more than 40% below their 2021 highs. They have managed to recover more than 200% from their summer 2022 lows.

Source: xStation5