Netflix steams ahead of its competitors
Netflix has beaten its rivals, so how can it keep growing?
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.
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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”.
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Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.
He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.
Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.
As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.
Follow Matthew on Twitter: @DrMatthewPartri
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