Written by: Sophie Lund-Yates | Hargreaves Lansdown
- Netflix added 8.8m new subscribers last quarter which was better than expected
- Total revenue rose 8% and in-line with expectations of around $8.5bn
- The group’s cheaper ad-supported tier saw membership grow almost 70% compared to last quarter
- SAG-AFTRA negotiations are ongoing
- Higher-than-expected membership growth means operating margins are expected to be 20% for the full year, at the higher end of the guidance range
- Shares rise 11% in after-hours trading
Subscribers were always going to be in the spotlight and what a bright light they’ve been, with 9 million new paying additions to the Netflix fan club following a crackdown on account sharing. Blockbuster hits including Sex Education and The Witcher have helped attract and retain consumers with open wallets. The ongoing SAG-AFTRA negotiations are a lingering cloud though, with disputes and the threat of prolonged production slowdowns increasing the risk of Netflix’s content slate being less than ideal, which is problematic when it doesn’t have the same back catalogue as Disney+ to fall back on.
The ad-supported tier is still very much in its infancy, and while a respectable whack of revenue’s being generated, the focus is very much on what the longer-term growth trajectory will be. There have been rumblings that the ad business isn’t as hot as it could be so there’s pressure for performance to keep moving upwards. The market is increasingly preoccupied with where Netflix’s long-term growth drivers are coming from, with a limit to how far membership prices can be inflated in the current environment and the tailwind from the password crackdown due to taper out at pretty exceptional speed.
All-in-all, management’s working hard to squeeze every last drop of cash possible from the available subscriber base, but as that cup begins to run dry, it will be a lot more important to understand exactly how successful the next phase of growth can be. The high interest rate environment means the market will remain skittish until that battle plan is signed, sealed and delivered. The market reaction generated from these results is a sigh of relief, but Netflix needs to keep pushing hard to keep eyes on screens if the upswing’s going to be maintained and built on.
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