The uptake in subscriptions to Netflix during the pandemic has been widely reported worldwide. There are about 200m subscribers which far exceeds the company’s initial expectations. Further, this huge subscriber base means that it does not need to raise additional external finance and is able to cashflow future operations, including $17bn on content production.
The finance markets have not been enthusiastic about this year's slowdown in subscriber sign-ups. Between April and June this year there were only 1.5m new subscribers, which is 85% down on the same period in 2020. During 2021 Netflix's share price has hardly moved, in fact at the beginning of July it dropped by 3%. Its current market value is around $225bn.
So….is the sun setting down on a golden period for Netflix? I would say not necessarily so. Here are some pretty sound reasons not to write off Netflix…..
Netflix started out as a video rental library and has shown it can adapt and is able to adopt new strategies as markets change.
The big media winner during the pandemic has not been streaming or films and TV, but video games. Gaming generates around $180bn a year in global revenue, the majority of under 25 year old's spend more time on games than any other media platform. This basic fact has not escaped the notice of Netflix. It has hired Mike Verdu as the ‘Gaming Head’. I understand that Netflix aims to offer subscribers games on mobile apps within the next year. In a world of constant amalgamation, I wonder whether there could even be a possible acquisition on the horizon?
The other big factor in the clout and potential of Netflix is in the international market. Historically the majority of revenue came from the US, but last year over half of their revenue was generated outside the US and Canada. The company currently has over 31m subscribers in Asia, including a good base in wealthy countries such as Australia, Japan, and South Korea. It’s worth noting Netflix does not have the level of competition in these markets as it does in the US.
Overall, I see the value of Netflix holding strong if the aforementioned strategies continue. A subscription of around £10 per month, depending on the package, looks great value to me. Whilst, I don’t resent it, I’m laying out £13 this evening for a seat at the local cinema, to see one film.