Secret ingredient that made Netflix a world beater could lead to its demise
In this crossposting from The Conversation, Lancaster University’s Martin Friesl explains how the consumer demand for Netflix’s award-winning unique content could ultimately spiral out of control.
Netflix’s latest half-year results have disappointed the market, sending shares in the TV streaming giant down 13% overnight. When this is the reaction to adding 5m subscribers in three months, taking your total to 130m around the world, it certainly tells you something.
In the last 12 months the stock had skyrocketed from US$158 to US$396, light years ahead of the S&P 500 average. This was partly driven by a stellar quarterly earnings report in April, which raised analysts’ and investors’ expectations about whether the company could maintain its incredible growth trajectory. Netflix had set its quarterly target at 1.2m more subscribers from the US and 5m from the rest of the world. Some analysts decided even this was conservative, publishing still higher growth expectations to justify the ambitious company valuation.
Yet the notes of caution creeping in shortly before the new results have turned out to be justified. A Macquarie analyst had argued that “expectations have gotten ahead of themselves”. Netflix missed both its US and international targets, adding 700,000 and 4.5m subscribers respectively. Cutthroat competition from the likes of Amazon, Hulu and HBO was help up to blame.
Netflix didn’t so much reinvent itself as followed through with it’s original plan. Unlike other DVD rental companies, it got into the game knowing that it would need to be a streamer before long, but that the US’s internet infrastructure wasn’t ready for that yet. So it was happy to cannibalise it’s DVD business as soon as possible.
That’s an interesting note, faux. Do you have a good/reliable source substantiating this further?