Netflix announced impressive results in its latest earnings report.
this is not the first time Netflix (NFLX -9.09%) It made the opposition look foolish.
Since Qwikster’s fiasco in 2011 and Netflix’s plan to split its DVD and streaming businesses, the company has bounced back from setbacks and its stock has hit new all-time highs.
Now, it looks like Netflix is ready to do it again. After falling more than 70% from peak to trough due to the pandemic, Netflix has recouped nearly all of its losses. And after subscriber growth briefly turned negative in 2022, the company responded with a new set of strategies that are clearly paying off.
The company’s first-quarter earnings report included record operating margins, the highest quarterly revenue growth since 2021, much faster-than-expected subscriber growth, and why the stock is trading at the current rate. It shows whether it looks like a screaming buy. Here are some highlights.
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1. New initiatives are yielding results.
In early 2022, Netflix found itself in trouble. The pandemic boom is over, and subscriber growth has turned negative. There were concerns that the company’s days of growth were over, especially after new competitors entered the streaming market.
Netflix has adapted to those challenges. The ad-supported tier was designed to provide a cheaper option for budget-conscious subscribers and a way to take advantage of Netflix’s huge subscriber base for advertisers who were losing viewers to traditional pay-TV channels. launched.
Netflix announced a 65% increase in advertising membership in the first quarter over the previous quarter, with more than 40% of new subscribers signing up in this tier.
Co-CEO Greg Peters also said during the earnings call that the company aims to split its total revenue evenly between ad- and non-ad-supported customers over the long term, and that the company is focusing on how advertising can benefit the business. He said it shows the potential to bring about change.
Additionally, paid sharing has been a huge success, contributing to a surge in new contracts and increased operating profits as the company reaps revenue from millions of previous password sharers.
These efforts were a key reason why the company added 9.3 million subscribers last quarter and expanded its operating margin to a record 28.1%.
2. You put off competition.
Netflix’s stock price plummeted in 2022 primarily because of its plunging earnings, but investors also feared the company would finally face serious competition. disney, apple, warner bros discovery, comcastand paramount global have all entered the streaming market, giving viewers more options.
But two years later, Netflix is making record profits, while most of its peers are still losing money.
Netflix has many advantages over its competitors, including its large subscriber base, which currently stands at 270 million people. This gives the company the scale to invest in a wide range of content in both English and foreign languages. This will help you reach a larger audience around the world and differentiate you from your competitors.
Finally, as a pure-play streamer, the company doesn’t suffer from the innovator’s dilemma of pivoting to streaming while traditional media businesses decline. Netflix has a huge head start over its competitors, and it looks like it’s only going to get bigger.
3. Stock prices remain misunderstood
Netflix beat expectations for revenue and bottom line in the second quarter, giving a solid outlook, but the stock is down 8% as of this writing.
The company announced it will no longer report quarterly subscriber numbers starting next year, which may come as a disappointment to Wall Street, but the decision reflects the evolution of its business.
Netflix’s competitive advantage is now stronger than ever, and earnings estimates could be revised significantly higher after the first quarter update.
The streaming leader still accounts for less than 10% of viewing time in all countries in which it operates. This means there are many opportunities for growth, especially as you can leverage advertising revenue streams. With advertising tailwinds, improving operating margins as the business scales up, and solid subscriber growth, Netflix appears well-positioned to maintain strong profit growth and push the stock higher from here.
Jeremy Bowman has held positions at Netflix and Walt Disney. The Motley Fool has positions in and recommends Apple, Netflix, Walt Disney, and Warner Bros. Discovery. The Motley Fool recommends his Comcast. The Motley Fool has a disclosure policy.
