Analysis: Netflix model “full of ambiguities”
July 21, 2023
Adding 5.9 million new subscribers cannot be bad news. But analysts at MoffettNathanson (MN) in a comprehensive report on Netflix say that the new trading model which has emerged from Netflix this past day or so is “full of ambiguities”.
“Over the past year or so, the narrative around Netflix has been centred on two key strategic shifts by the company,” says MN. “First, after years of resistance to the idea, Netflix decided to get into advertising with the launch of an ad-supported tier in their twelve highest-revenue-generating countries. Then the company set its sights on password-sharers, finally deciding to crack down on the 100 million homes around the globe that were sharing accounts with users outside of their household,” says MN.
MN adds that Netflix has been training investors to ignore subscriber counts and instead focus on top-line revenue growth, which both initiatives were intended to reaccelerate. However, the drivers of Netflix’s revenue growth are now more difficult to decipher than ever.
The MN report says that the Netflix trading model was always a challenge, and although it is still in essence a P x Q (price x subscribers) business, there was variability around expectations for subscriber additions, but the drivers were clear. “Today, that could not be further from the truth!” says MN.
“Given the sheer number of unknowns it is hard to have any conviction to the upside or to the downside.”
MN gives Netflix a definite mark-down in its expectations on shareholder value, trimming its price target from the pre-announcement $475 (€427) or so, to around $100 less at just $380. Netflix lost 8.4 per cent in value following the results announcement. They closed on July 20th at $437 per share.
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