- Stock jumps nearly 10% after-hours to two-year high
- More than 13 million net new subscribers join the streaming giant
- Pricing power and growth levers to pull
It might be a little premature to call victory for Netflix (NFLX:NASDAQ) in the vicious TV streaming wars, but that hasn’t stopped some. ‘These numbers underscore the fact that Netflix has ultimately won the streaming wars’, said Ben Barringer, technology analyst at Quilter Cheviot.
The numbers referred to include 13.1 million net new subscribers worldwide during the last three months of 2023, $6.9 billion of free cash flow and the company is talking up higher operating margins. Netflix is aiming for a 26.2% operating margin in Q1 2024 after 2023’s 20.6% versus 17.8% in 2022.
Little wonder the stock surged close on 10% after-hours, hitting $492 levels not seen in two years.
‘Netflix’s latest numbers shake off any suggestion the company is struggling to find new ways to grow’, said Russ Mould, investment director at AJ Bell, who also points out the 18 Oscar nominations this week across 10 of its original content films.
GAMBLED AND WON
If a clampdown on password sharing was going to unbalance growth, as many thought it might, it seems to be paying off. Households around the world have become used to Netflix as being one of their essential services, they simply cannot bear to live without it. Any freeloaders who used to borrow passwords from friends and family are now signing up themselves, exactly as Netflix had hoped.
So, what next? Plenty it seems. Gaming is growing nicely, while it has moved beyond dipping its toe into sports waters, signing a $5 billion 10-year deal to exclusively broadcast World Wrestling Entertainment’s Raw from January 2025 across the US, Canada, UK, and Latin America, giving even more reason for subscribers to stick with the platform.
Who knows, perhaps Premier League football will be next. It may have just signed a new four-year TV broadcast deal in December, yet 2027? As the Athletic recently reported, Premier Football is now the most watched football (soccer) league screened in the US and is growing viewers rapidly.
PROVEN PRICING POWER
What has emerged is a company with pricing power, the ability to push up prices without losing huge subscriber numbers, always an attractive characteristic for investors. It also sees big opportunities with advertising, with a desire to have improved measurement skills and better targeting capabilities so customers are getting more relevant adverts.
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‘In theory, the more data it can provide advertisers and the more targeting capabilities it develops, the more it can charge to carry those promotions’, says AJ Bell’s Mould.
‘Despite the strength in share prices of the big tech companies last year, businesses like Netflix simply keep delivering’, said Quilter Cheviot’s Barringer. ‘While it has won the streaming wars, it still has a number of growth drivers behind it which make us believe that this long-term story is far from over.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Steven Frazer) and the editor of the article (James Crux) own shares in AJ Bell.
