It’s hard to imagine that streaming giant Netflix could ever give its shareholders cause for concern, especially with runaway successes Stranger Things and Orange Is the New Black releasing new seasons this past quarter. However, their Q3 announcement came with nail-biting tension.
Would they be able to hold on to ambitious subscriber projections? Or would the earnings results reveal a drop for two quarters in a row? With the US being the biggest market for Netflix and its streaming competitors, all eyes were on the latest statement to see if targets would be hit.
The news, when it was announced on Wednesday, was less black and white. Subscriber growth fell short – but only just – and of this, only 62.5% was expected domestic growth.
Critics of the service were quick to highlight the knife-edge that Netflix has found itself walking on. For when it announced its Q2 results three months ago, not only did it shed U.S. subscribers for the first time since 2011, but company stock went down by almost 20% based on those results.
A big sigh of relief, then, with Q3 – as while there was a small shortfall in the number of subscribers, the company more than made up for it with growth in average customer revenue. The increase of 9% made the company much more profitable.
Indeed, shareholders would have been pleased to note that Netflix’s share price had risen to $1.47 per share ($665m), which dwarfs the £0.89 per share price it held this time last year.
For investors clinging on to the ambitious company forecast of 7m additional subscribers, they will have been pleased to see that this was almost realized thanks to international growth.
Results show that the company added a further 6.8m paying subscribers overall, and of these, 6.3m were from the international fan base. It was this result that led to the share price jumping by almost 10% a few hours after the report was released.
Such positivity could be put down to the stellar content offering that Netflix has released this quarter, including the two smash hit series mentioned above. But with a whole host of other streaming providers, such as Disney+ and Apple TV+ set to enter the market shortly, content will be the battle that wins the war.
For now, a $2 price increase has given Netflix a boost in terms of revenue. It may also provide a reason for previously loyal fans to jump ship to a new streaming provider if a gap emerges in terms of content slates.
There is also a real risk of subscription fatigue in general, especially when canceling is so easy. With monthly costs rising, Netflix could be considered a luxury that is first to go when budgets get cut.
The company has launched a charm offensive by putting together a holiday wish list, with movies and fan favorites galore such as Holiday in the Wild with Sex and the City’s Kristin Davis.
Still, the proof, as they say, is in the pudding. And with competitors such as Amazon Prime Video and Google able to diversify into other markets, there is a risk that Q4 may not be as plentiful for Netflix.
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