Trending Topics

Behind The Numbers: Netflix’s Magic Subscriber Numbers

In the wake of Netflix reporting earnings after the market yesterday and their subsequent earnings call, analysts are abuzz with reaction to the stock. Although Netflix posted some of its best numbers in terms of revenues in the past 5 years, and beat analysts expectations in earnings per share, Wall Street was extremely disappointed with the number of new subscriptions added in the quarter. According to bloomberg.com:

“The biggest subscription-video service reported 630,000 new U.S. streaming customers in the second quarter, according to a statement yesterday. While above year-earlier gains, that was about 100,000 shy of analysts’ estimates and the company’s highest forecast. The stock, this year’s top performer in the Standard & Poor’s 500 Index, slid 4.5 percent in New York.”

The video above breaks down Netflix’s strategy and their magic number of subscribers that their CEO thinks they can hit in the next few years—which is 90 million. That’s quite an ambitious target seeing that it’s three times the amount of U.S. current subscribers. Now there is room for optimism as their content strategy has been working by creating exclusive content  for their subscribers. Both of their shows, “House Of Cards” and  “Arrested Development”  have gotten off to great starts, with the former garnering 14 Emmy nominations. However it should be said that the kings of content, HBO and Cinemax (both owned by Time Warner), only have a combined subscriber base of 41 million subscribers, so that’s still double the most popular networks that are currently out there.

Netflix does have another card to play on that front though, which is the fact that the younger generation is extremely disgruntled with traditional TV distribution, as they have already started ditching the cable networks. “Cord-cutters” as they’re referred to, have already reached a million people and most of them are looking to services like Hulu and Netflix to fill the void. And while many of them, and a vast number of other people, would love to subscribe directly to a HBO, they can’t because it’s tied to traditional cable packages. So Netflix is betting on a future where they would provide enough quality content and at only $8 a month, they can gain a high volume of subscribers. As reported by forbes.com:

“More than most tech stocks, however, Netflix is an investment in the future of TV (or, if you prefer, membership-happiness). Despite bigger cash piles, Google (GOOG), Amazon (AMZN) and Apple (AAPL) have yet to gain a stronger foothold in online television, despite its growing popularity. Meanwhile, the big-media backed Hulu has undergone its own struggles.”

The key component to all this, however, is time. As the video notes, Netflix needs to execute their strategy before Hulu and Amazon catch up. And we can throw the rest of the tech companies and the traditional cable companies into the mix as well, as they’re all vying to either gain or maintain control over your living room. We’ll see how Netflix does in the future, in the meantime it has been one of the best performing stocks in the S&P 500. And the losses in the stock is probably due to some profit taking rather and a complete negative downturn. But with a stock as volatile as Netflix, you just never know.

 

What people are saying

Leave a Reply

Back to top