Netflix stock is down – however it has a ‘problem’​ its competitors would love to have

In three years, Netflix won't exist. This was a bold prediction CHE Proximity's Ben Shepherd recently heard, and one he says, is way off the mark. Here, he looks at what the numbers are really telling us.

The headlines this week all say one thing – Netflix shares drop double digits off subscriber losses. Read deeper and the market movements are due to net subscriber additions increasing 2.7m compared to forecasts of 5m.

Reports of Netflix’s demise are greatly exaggerated

To put the drop in context – in the previous three quarters Netflix added over 24m net subscribers.

The market reaction of an 12% after hours drop is interesting only for one reason – it provides a small opportunity to buy Netflix shares at a discount.

Looking at Netflix’s other metrics, it still remains a growth machine that is eating up the business models of many – especially the TV networks.

Q2 revenue was up 26% – to $4.92b USD.

Operating margin was up to 14.3% – an improvement of 2.5 percentage point year on year. Margins are improving despite some pundits claiming these will blow out as content rights increase in price.

It has forecast to market that it will add 7m net subscribers in Q3 – 15% up year on year.

My read is Netflix has navigated both a price rise, and the beginning of increased competition, and has come out of it 26% better revenue wise than it did the year before.

The drop in shares is the sort of over reaction we always see with digitally led businesses – with the inevitable recovery within 14 days.

Show me an entertainment business – ad supported or otherwise – doing these sorts of numbers and volume. Netflix still has significant growth upside in audiences over 55 and you would assume at some point it will look to tap into this. This is TV heartland and a huge source of volume in terms of consumption minutes. Tapping into this is tapping into the heart of TV.

I was on a panel last Friday and a fellow panelist delivered the hot take that in three years Netflix wouldn’t exist. I was equal parts shocked and equal parts impressed with this bold prediction.

However given the trajectory Netflix is on and the monumental lead it has on any potential disruptor – it felt like an unlikely scenario.

Ben Shepherd is the chief media officer at CHE Proximity. This piece was originally published on LinkedIn, and has been republished here with permission. 


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