Streaming service Netflix has pulled further ahead of its rivals, says Bloomberg’s Lucas Shaw. It added 8.05 million customers in the second quarter and raised estimates for annual sales and profit margins.
The subscriber figures eclipsed expectations in every region worldwide and included 2.8 million new customers in the Asia-Pacific region, with sales climbing by 17% year on year. This growth was partially fuelled by a number of “major hits”.
However, the main driving force was a crackdown on password sharing, as well as a lower-priced subscription plan based around advertising, which now applies to 40 million people. Netflix, with its 27% operating margin and “robust” free cash flows, may be the “envy of the sector”, says Lex in the Financial Times.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
But winning the advertising war “will be easier said than done”. It is still a “minnow” in advertising, compared with the “well-oiled” ad machines of YouTube and Amazon, and it is only just starting to build its own ad-tech platform.
How can Netflix keep growing?
One option would be to show more ads; or it could introduce ads to its other ad-free tiers, taking a leaf from Amazon’s Prime Video where “showing ads is the default mode”. However, this could backfire as Netflix customers “will have less tolerance for ads, and for being asked to pay more to stay ad-free”.
Netflix should ditch its reluctance to engage in dealmaking, says Jennifer Saba on Breakingviews. It should consider bidding for the Max streaming service of rival Warner Bros Discovery, whose management is contemplating selling off assets.
Max “isn’t as profitable as Netflix”, but it also contains successful studio Warner Bros, as well as HBO, which owns the rights to hit TV show, Game of Thrones. While the cost may require Netflix to issue more shares, it might be worth it if it gives the service “valuable intellectual property” to help it “keep viewers and gain more”.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
-
The new frontiers of cybersecurity and how to investMatthew Partridge reviews the key trends in the cybersecurity sector and how to profit
-
Investment trust troubles: back to the 1970s for investors?Opinion Those fearing for the future of investment trusts should remember what happened 50 years ago, says Max King
-
New frontiers: the future of cybersecurity and how to invest
Matthew Partridge reviews the key trends in the cybersecurity sector and how to profit
-
An “existential crisis” for investment trusts? We’ve heard it all before in the 70s
Opinion Those fearing for the future of investment trusts should remember what happened 50 years ago, says Max King
-
8 of the best properties for sale with wildlife pondsThe best properties for sale with wildlife ponds – from a 16th-century house in the Ashdown Forest, to a property on Pembrokeshire’s Preseli Hills
-
Why a copper crunch is loomingMiners are not investing in new copper supply despite rising demand from electrification of the economy, says Cris Sholto Heaton
-
Where to look for Christmas gifts for collectors“Buy now” marketplaces are rich hunting grounds when it comes to buying Christmas gifts for collectors, says Chris Carter
-
No peace dividend in Trump's Ukraine planOpinion An end to fighting in Ukraine will hurt defence shares in the short term, but the boom is likely to continue given US isolationism, says Matthew Lynn
-
Will the internet break – and can we protect it?The internet is a delicate global physical and digital network that can easily be paralysed. Why is that, and what can be done to bolster its defences?
-
Why UK stocks are set to boomOpinion Despite Labour, there is scope for UK stocks to make more gains in the years ahead, says Max King
