Netflix (NFLX.US) had humble beginnings. Company started as a mail-based DVD rental business in 1997 when DVDs were becoming mainstream in the United States. It operated in such a model until 2007 when its business focus switched to media streaming via the Internet. While Netflix continued to rent DVDs, its new services gained traction. A deal with major film production studios was reached in 2010 and in the same year the company started to expand beyond the United States by beginning to offer its services in Canada. Expansion accelerated from there and the company got involved in movie and series production. Netflix is now one of the world's best-known entertainment companies, offering services in more than 190 countries and having more than 220 million paid subscribers at the end of 2021
End of pandemic - end of growth story?
Start investing today or test a free demo
Open real account TRY DEMO Download mobile app Download mobile appAs Netflix increased its subscriber base, so has the company's sales and earnings soared. Netflix generated just slightly below $30 billion in annual revenue in 2021. Company's business benefited greatly from the coronavirus pandemic, with revenue increasing 24% in 2020 and 18.8% in 2021. Stay-at-home mandates boosted demand for various types of at-home entertainment products, including streaming services. However, as pandemic starts to recede and countries no longer impose as strict restrictions as they used to, Netflix growth started to slow. Company expects a big slowdown in new subscriber growth in Q1 2022, citing increased competition as the prime reason.
Streaming business gets more difficult
While Netflix warned that growing competition within the streaming industry makes the outlook for further growth in subscriber numbers bleak, it should be noted that it is not the only company in the business to have doubts about the future. Disney also said that maintaining high subscriber growth rates became difficult as the market became saturated following Covid-19 boom. While some customers subscribe to multiple streaming services at once to get access to exclusive content, not everyone can afford that and has to decide which one to use. This is even more important now as high inflation causes consumers to be more cautious with spending.
What's next?
As costs are increasing and subscriber growth is faltering, streaming companies face a difficult decision on what to do next to preserve growth of their business. Streaming companies could boost spending on new productions in order to enrich its portfolio and attract new customers. However, they can also target existing but not "official" customers and this seems to be the way Netflix decided to take by increasing crackdown on illegal account sharing. This is a risky play - barring such customers from Netflix' service could encourage them to start paying fees but it can also discourage them from using the company's services at all and switch to competition. Another approach to boosting sales in times of rising costs and slower subscriber growth could be boosting plan prices, and this is also what Netflix has decided to do with prices for its services in the United States and Canada increasing in late-2021.
Investors now have to decide if these steps can keep the bottom line growing or if they are just desperate moves to maintain status quo. The stock is down more than 30% this year so many investors may see this as a bargain. But this will only be so if the company finds a path to strong growth again.
The content of this report has been created by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, (KRS number 0000217580) and supervised by Polish Supervision Authority ( No. DDM-M-4021-57-1/2005). This material is a marketing communication within the meaning of Art. 24 (3) of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II). Marketing communication is not an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC and Commission Delegated Regulation (EU) 2016/958 of 9 March 2016 supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the technical arrangements for objective presentation of investment recommendations or other information recommending or suggesting an investment strategy and for disclosure of particular interests or indications of conflicts of interest or any other advice, including in the area of investment advisory, within the meaning of the Trading in Financial Instruments Act of 29 July 2005 (i.e. Journal of Laws 2019, item 875, as amended). The marketing communication is prepared with the highest diligence, objectivity, presents the facts known to the author on the date of preparation and is devoid of any evaluation elements. The marketing communication is prepared without considering the client’s needs, his individual financial situation and does not present any investment strategy in any way. The marketing communication does not constitute an offer of sale, offering, subscription, invitation to purchase, advertisement or promotion of any financial instruments. XTB S.A. is not liable for any client’s actions or omissions, in particular for the acquisition or disposal of financial instruments, undertaken on the basis of the information contained in this marketing communication. In the event that the marketing communication contains any information about any results regarding the financial instruments indicated therein, these do not constitute any guarantee or forecast regarding the future results.
