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.
Subscribe to 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.
-
Shares in luxury goods companies take a hit – will they recover?Luxury goods companies have run into trouble, and the odds of a rapid recovery have receded. What next?
-
Is Labour on the brink of a crisis?Labour's Autumn Budget is approaching – a fiscal and economic storm on the scale of 1976 looks likely, says Max King
-
A bull market on borrowed timeWhile the US enjoys a bull market, it may not last. Will the US rate cut push stock prices down?
-
What will a broken-up Google look like?The US courts have ruled that Google is a monopoly, leaving it facing the prospect of a break-up. WIll that be a good thing?
-
How will the UK gambling sector be hit by the Budget?There are concerns for the UK gambling sector in the lead-up to the Autumn Budget. What could be on the cards?
-
HSBC returns to cost-cutting planHSBC is set to revamp its commercial banking division – but will it come at a cost?
-
Pfizer shares rise as US investor takes $1 billion stakePfizer shares are on the up since US activist investor Starboard Value built up a stake in the drug maker. But strategic options appear limited
-
Qualcomm could acquire rival Intel – but securing the deal won't be easyA tie-up between Qualcomm and its semiconductor rival Intel would be a coup. But multiple regulatory and commercial hurdles lie ahead.
-
How to invest in the quiet market monthsHere's how to invest in the quiet market months, since “sell in May” hasn’t paid off this year.
-
Spire Healthcare: invest in the booming demand for private healthcareSpire Healthcare is one of the few listed companies benefiting from the growing trend in private healthcare. Should you invest?
