19 October 2022
If you are covering Netflix’s Q3 results, please find below a comment from Ben Barringer, equity research analyst at Quilter Cheviot:
“Netflix has confounded expectations and announced that it is back on the growth path after a challenging few quarters. It had a substantial beat on the number of subscribers added and as a result the share price has surged by 14% in after hours trading. The guidance for the rest of the year was also strong in the face of economic challenges, in particular the strong US Dollar, suggesting that this is not a fluke and that it is a company to be reckoned with again.
“There are a few reasons for this impressive turnaround. Firstly, the Covid pandemic and the behaviours of consumers as a result has been incredibly hard to predict. Even now people are only just returning to their routines and usual patterns that they had pre-pandemic and as such Netflix’s numbers should be a little more stable now. Furthermore, the television has traditionally been counter-cyclical, representing the opposition of the current economic mood. People are now choosing not to spend out of the home and as such TV gets a boost – Netflix will definitely be taking advantage of this trend. Finally, the last couple of years has seen a phenomenal amount of streaming services be launched that has potentially distracted customers and made them try those channels out on good deals. However, Netflix clearly has the library and quality to bring people back and ensure that if they are to pay for one streaming service that it is theirs.
“The future looks bright for the company too, with the advertising supported model launching in a couple of weeks in key markets. It will be priced $3 below the cheapest current package, which Netflix believes advertising revenue will comfortably make up and beat this shortfall. They have seen good interest from businesses wanting to advertise on the platform and it brings in a product that should see the number of users who share their accounts fall or grow at a much slower rate.
“With The Crown about to drop and a good fourth quarter slate, Netflix has the opportunity to sustain this growth and look ahead to what could be a successful 2023.”
