Netflix doing better than expected

The stock market had already been anticipating a turnaround for Netflix judging by the pick-up in its share price in recent months, but few expected significant good news to appear before the launch of the cut-price advertising-led subscription tier in November.

Netflix’s third-party quarter results pleasantly surprised, with revenue, operating income and subscriber numbers ahead of expectations.

Netflix has been down in the dumps for a while, after seeing subscriber numbers surge during the pandemic and then finding it impossible to sustain this momentum as the world returned to some sense of normality. It now seems to have regained its mojo and there is a lot riding on the success of the new advertising-led subscription tier.

AJ Bell’s Russ Mould said:  “First, it could help reduce customer churn – anyone looking to cut spending during the cost-of-living crisis can just move down a subscription tier, pay a bit less each month and still be able to watch Netflix. That’s better for the company than simply losing the customer outright.

“Second, it might attract new customers who were previously put off the higher price point of a subscription. Third, it creates an additional revenue stream for the group in the form of advertising income.

“Some existing customers might switch to the cheaper tier, but many won’t if they don’t want their TV show or film regularly interrupted with advertisements. Unlike Sky’s NowTV which only shows advertisements before a film starts, Netflix is going to average four to five minutes of adverts per hour watched.

“There are a lot of moving parts with Netflix’s revitalisation plan, but ultimately it all comes down to the content. If it cannot constantly refresh its library of content and ensure that quality of programmes is high, then subscribers will lose interest and go elsewhere. That’s a very expensive game for Netflix to play given the fierce competition for film and TV rights, and the spiralling cost of new productions.

“The fact Netflix chose to have a dig at streaming rivals by estimating they are all losing money (and pointing out it is not) is a bit of a cheek. Yes, it’s had a good quarter, but Netflix itself can be accused of paying excessive amounts of money for what turned out to be poor quality productions on plenty of occasions.”