Netflix Inc (NASDAQ:NFLX)
Netflix is a well-known online streaming service that has fundamentally altered the method by which people watch television shows and motion pictures. In recent years, Netflix has experienced difficulties in generating revenue, dealing with commercials, and preventing users from disclosing their passwords. In the following paragraphs, we will investigate these difficulties and present an in-depth study of the effect that they have on Netflix’s company.
The fact that Netflix operates on a subscription basis is one of the elements that has contributed to the company’s growing income. Netflix provides its users with a choice of subscription options, ranging from basic to premium, that enable them to watch their material without being bothered by advertisements. As a result of this, Netflix has become a well-liked option among viewers who do not wish to be subjected to an onslaught of advertising while viewing their preferred programs.
Advertisements
Netflix has been exploring additional ways to increase revenue, including the introduction of advertisements, despite having great success with their strategy that is centered on subscriptions. In 2021, Netflix began experimenting with advertisements for its own programming that were displayed on its site. The decision, however, was met with resistance from consumers who believed that the addition of adverts would diminish the quality of the viewing experience.
Since then, Netflix has stressed that it is exclusively testing advertisements for its own content and not for third-party marketers when it conducts these tests. They have additionally provided consumers with the choice to bypass the advertisements if they do not wish to view them. Despite this, the implementation of advertisements on Netflix continues to be a contentious topic among subscribers.
Sharing of Password
Another problem that Netflix has been experiencing is users disclosing their passwords. Because of the proliferation of streaming options, consumers have taken to telling their friends and family members their Netflix passwords, which has resulted in a loss of money for Netflix.
In response, Netflix has been looking into several ways to prevent users from disclosing their passwords. In the year 2021, they began testing a new feature that demanded users authenticate their accounts by entering a code that was either emailed to them or provided to them through text messages. Although this function has not yet been made available to all users, it is an important step toward eliminating the sharing of passwords.
Netflix is now going through a moment of transition, and as a result, its upcoming financial results may leave investors wanting more. According to one analyst at Citi, now is not the time to get worked up.
Earnings
Since quite some time ago, people have been talking about how much money Netflix makes. The fact that the company’s revenue has been unstable in recent quarters has raised some questions about the long-term viability of its business model. Despite this, Netflix’s revenue has been steadily growing over the course of the past several years. The revenue that Netflix recorded for the fourth quarter of 2021 was $7.2 billion, representing a 16% increase when compared to the same time in the year before.
On April 18, Netflix (NASDAQ:NFLX) is expected to release the company’s earnings report for the first quarter. Investors are going to look for clarification on the company’s next measures regarding rules on password sharing, global pricing reduction, and the effectiveness of the new lower-priced subscriber tier that incorporates advertisements. This is because investors are going to want to make decisions based on this information.
The Netflix ad-supported tier became available to subscribers in the United States in the month of November. This provides customers with the opportunity to access their favorite shows, such as Bridgerton, for a reduced cost by including commercials in the streaming experience. This was done with the intention of assisting the streaming behemoth in luring new users or retaining existing ones who may be having difficulty keeping up with the rapidly rising cost of living.
In an effort to increase its revenue, Netflix began in February to apply new restrictions across a variety of nations intended to regulate the sharing of Netflix passwords. According to the corporation, more than one hundred million homes were sharing accounts, which hampered its capacity to invest in programming. Additionally, in the month of February, it was reported that the corporation had decreased the prices of monthly subscriptions in over a hundred different countries.
Citi analyst Jason Bazinet noted in a research note that earnings might look complex this time around because of all the changes that the firm has undertaken in recent times, but he cautioned investors not to “overact to 1Q23 KPIs [key performance indicators] or financials and keep their eye on the prize.”
Bazinet did not change his recommendation on the stock from Buy to Hold and his price objective of $400.
“The material benefits we anticipate seeing from the company’s introduction of an ad tier are a large part of the basis for our bullish stance on Netflix,” According to what Bazinet has stated, “We also see an opportunity for the company to generate incremental cash flow by raising prices in order to capture additional consumer surplus.”
Despite the fact that Netflix is said to have reduced pricing in some of its less significant markets this year, the company’s management revealed on its most recent earnings call that it plans to hike rates in some nations.
When it comes to optimism heading into earnings, Bazinet is not alone in his outlook. In a note that he penned the previous week, Jefferies analyst Andrew Uerkwitz stated that he anticipates “a lot of noise in 2Q23.”
It was stated by him that Jefferies is “being very conservative in our own modeling of churn in response to password crackdown.”
On the other hand, he made the following observation: “We believe that the majority of that churn will be somewhat impulsive, as it has minimal impact on the existing subscriber, and those members will return to the service over the course of 2023.” Because of this, we advise purchasing any dip that is coupled with a conservative 2Q23 recommendation. Uerkwitz has assigned a Buy rating to the company and set a price objective of $415.
On Wednesday, Netflix stock closed at $336.70, a decrease of 0.5% from the previous day. The price of the stock has increased by 14.2% so far in 2018.
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