(BFM Bourse) – The video-on-demand site has found its way back to subscriber growth, which has led several research departments to change their advice on the title. For the future, the fight against the sharing of connections will be decisive, this phenomenon representing a significant shortfall.
Netflix has reestablished the connection with the market. The streaming platform began a major shift when it last presented its quarterly accounts last week, putting an end to the hemorrhage of subscribers, which delighted the market.
After losing 200,000 subscribers in the first quarter and then 1 million in the second, the group recorded 2.4 million net subscribers from July to September, a level substantially higher than its own forecast, which stood at 1 million. The company also expects the trend to continue, anticipating a net gain of 4.5 million subscribers in the fourth quarter. This would bring the total to 227.8 million subscribers.
This announcement allowed the group to regain credit with Wall Street, pushing investors to look beyond the negative impacts of exchange rates on revenues, estimated at $1 billion by the company over the whole of 2022, and due to the strength of the dollar. Netflix shares have thus recovered nearly 20% since the publication of their third quarter results. The good commercial performance of the group also prompted two research departments to review their judgment on the evolution of the share price. Deutsche Bank thus moved from “neutral” to “buy” on the stock while JPMorgan raised its advice to “overweight” against “neutral” previously.
About 100 million accounts
For the future, the evolution of Netflix’s share price will largely depend on its initiatives taken to accelerate its growth. As such, its offer with advertising comes into force this Wednesday, November 2, for a price of 5.99 euros, or three euros less than the “essential” offer in France. The goal is to capture a public hesitant about the prices charged by the company. Deutsche Bank believes that Netflix could in the future develop advertising for offers beyond its “essential” package and thus generalize it to “standard” and “premium” packages. “Advertising also opens up opportunities for Netflix live content, including the potential for sports at some point,” the German bank also considers.
The most closely watched initiative, however, will come next year. From the beginning of 2023, the American group will put in place its measures to “monetize” account sharing, that is to say when a user “borrows” identifiers from a subscriber to view content without having to pay the subscription. As our colleagues at BFM Tech explain, the group will charge an additional cost to add out-of-home people to an account, with the ability to create sub-accounts. During tests conducted in South America, this possibility was charged between 2.12 dollars and 3 dollars, depending on the country.
The group’s management had explained at the beginning of the year that around 100 million households, including 30 million in the United States and Canada, used these code shares, which is obviously a significant loss of earnings for the company. While the practice of codeshares has not really increased over the years, Netflix explained that it has prevented its subscriber base from growing in many markets, even if this problem has been temporarily masked by the surge in new customers due to the health crisis.
Multi-billion dollar revenue to track
“We’ve always tried to make sharing within a member’s household easier, through features such as profiles and multi-streaming. While these features have been very popular, they have created some confusion about when and how to share Netflix with other people”, judged the company. “Even if we won’t be able to monetize everything right away, we think this is a great opportunity in the short and medium term,” she added.
Citi Bank estimated earlier this year that codesharing was causing a loss for all US streaming services of $25 billion, according to estimates cited by Seeking Alpha. According to the American bank, Netflix accounted for a quarter of this shortfall, or $6.25 billion.
For JPMorgan, putting an end in part to these 100 million “phantom accounts” would allow the group to accelerate its growth, increase its margins as well as its cash flow. Deutsche Bank, for its part, has made its calculations. If half of these 100 million households were monetized at $7 per month on average, this would represent additional revenue of $4.2 billion for the American group, with a relatively high margin. That’s about 15% more than the company’s 2021 revenue of $29.7 billion. The German bank estimates that Netflix should capture this growth over the next two to three years, with a larger contribution in fiscal years 2024 and 2025 than in 2023.
“The 100 million ‘account borrowers’ that Netflix has identified represent a clear and present growth opportunity that Netflix will soon be able to tap into,” Deutsche Bank said.
Julien Marion – ©2022 BFM Bourse
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