Expectations were so low in the run-up to Netflix’s results that it’s no surprise to see its share price jump in after-hours trading. Yes, it is still losing subscribers. But nowhere near as many as forecast, so there has been huge relief in the market.
Investors like it when companies under-promise and over-deliver. Yet, at the end of the day, Netflix is stuck in the mud and its latest figures are hardly worth celebrating.
“It wants to generate more revenue and plans are in motion to achieve this goal,” says Danni Hewson, financial analyst at AJ Bell.
“Having a cheaper-priced service with adverts could help attract a variety of different users. These include hooking in people who previously couldn’t afford the standard version of Netflix and retaining those who were on the verge of cancelling because money is getting is tight.
“Many advertisers will be excited at the prospect of being able to promote their goods and services on Netflix’s platform, given its wide reach. And it also presents an opportunity to target younger people who may only consume video content via streaming platforms or the internet.
“Netflix is guilty of being too reckless with its spending on content in recent years, chasing quantity over quality and paying too much to attract star talent. Reining that spending in, and focusing on quality, would be to the company’s benefit longer term.
“The streaming sector is highly competitive and new entrants continue to enter the fray. That means Netflix must find ways to stand out from the crowd – it will only do that by having a regular pipeline of must-watch content.
“It’s a dangerous game to play as there is always the temptation to pay top dollar to secure the top names in Hollywood. But as Netflix has already found out, having someone famous in its productions doesn’t always equate to viewer satisfaction. It has been responsible for some A-list fronted clangers.”