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.
Try 6 free issues of MoneyWeek today
Get unparalleled financial insight, analysis and expert opinion you can profit from.
Start your trial
Sign up for MoneyWeek’s free twice-daily newsletter.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
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.
Latest Videos FromMoneyWeek
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.
