Why Netflix’s growth story may not be over as Wall Street annoys subscribers
Netflix (NFLX) shares plunged more than 20% on Friday – the biggest drop since October 2014 – after the streaming giant reported declining subscriber growth in the fourth quarter, amid an already crowded streaming landscape.
The platform added relatively weak 8.3 million subscribers in Q4, and forecast a net increase of just 2.5 million subscribers in the current quarter, compared to 3.98 million in the first quarter last year. But top media analysts have argued that this is not the time to panic.
“This is not over,” Rich Greenfield of LightShed Partners told Yahoo Finance Live this week. “The reality is that we are still very early in the streaming conversion from linear TV to streaming TV.”[ads1];
The analyst rejected the idea that Netflix has hit a kind of ceiling, noting that the company’s around 222 million subscribers have not even touched the service.
“There are probably 600 to 800 million homes with high enough broadband quality to support Netflix streaming, or any streaming service,” he explained.
– There is still a lot of growth left [but unfortunately] “It’s not always the straight line the market wants,” Greenfield added.
In 2021, the stock performed worse than the S&P 500 (^ GSPC) after a major film in 2020 that saw streaming players soar on the wings of covid-19-inspired “stay at home” retailer.
Driven by the transition to external work and online schooling, the number of subscribers increased by a record 25.9 million in the first half of the turbulent year, before falling sharply as the effects that strengthened the “stay at home” trade went their way.
Bank of America, which lowered its $ 605 price target but reiterated its “Buy” rating, suggested that Netflix’s earnings report could change Wall Street’s mindset going forward.
“[Netflix] is actually very confident in the coming years. It’s Wall Street who does not trust … “Richard Greenfield, Lightshed Partners
“Investor attention is likely to shift beyond a unique focus on subscribers to the potential long-term profitability of these power companies,” the bank said in a new note published Friday.
“Growth in the streaming industry will be largely driven by international markets, as it appears that the United States is approaching peak penetration levels,” the memo continued, adding that “large established players such as Amazon and Netflix will retain a top position with Disney and Warner. Bros. Discovery. ”
Netflix has refocused attention on international markets, with BofA seeing “continued growth in Asia” as a key driver in 2022.
“More shots on goal than anyone else”
Netflix has already set the tone for the coming year, increasing its US base plan by $ 1 to $ 9.99 per month. A standard plan now costs $ 15.49 (up from $ 13.99.), And the company’s premium plan increased to $ 19.99 per month from $ 17.99.
Netflix COO Greg Peters said during the earnings interview that “customers are willing to pay for good entertainment”, with fans’ favorite originals including “Ozark”, “Bridgerton”, “Stranger Things” and “The Crown” all ready to triumph returns. year.
And compared to other streamers, LightSheds credited Greenfield Netflix for taking “more shots on goal than anyone else.” He cited the surprise success of “Squid Game” as a recent example, with a record 142 million people watching the popular South Korean show during the first four weeks.
“No one had ‘Squid Game’ as the outbreak that was supposed to feed Q4 a year ago,” the analyst said, noting that Netflix will surprise people this year because of “the amount of shots on target they take.”
Nevertheless, Netflix acknowledged that competition could “affect marginal growth some” during the earnings talk on Thursday night. While the company still leads in paid users – Amazon Prime Video has 175 million subscribers and Disney’s Hulu, Disney + and ESPN + have a total of 179 million subscribers – other streaming companions are quickly catching up.
Despite the competition, Greenfield reiterated that Netflix is uniquely positioned, largely thanks to its commitment to content.
“There is certainly a fear that if Netflix does not have enough content to continue to increase the number of subscribers, imagine what everyone else will have to do,” the analyst said. Competitors “use far, far less than Netflix.”
Greenfield argued that investors should breathe a sigh of relief when they knew that the streamer continues to spend billions of dollars on content worldwide.
“If Netflix said to you, ‘Look, it does not make sense to spend more money’ [then] it’s a very negative sign … but instead they are investing more in content worldwide, “Greenfield explained. The company is” actually very confident in the coming years. It is Wall Street that does not trust it and is only worried about this growth story. “
Bank of America agreed that content spending will remain a focal point in the room, warning that “subscale providers will struggle to keep up with the dramatic increases in content spending and will eventually have to find more partners to reach the scale required to compete on a global scale. ”
Alexandra is a producer and entertainment correspondent for Yahoo Finance. Follow her on Twitter @ alliecanal8193
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