- Writers’ and actors’ strikes notwithstanding, Netflix is riding high ahead of its Wednesday 2Q call.
- The streamer’s stock is soaring while other media companies are in the doldrums.
- To outsiders, the company is projecting confidence and a business-as-usual vibe.
It’s a miserable time for Hollywood, with actors’ and writers’ strikes driving productions to a halt, streamers racking up losses, and the box office in malaise as white-knuckled execs pray for a “Barbenheimer” rescue.
But one company that doesn’t seem to be sweating it too much is Netflix. Its share price has soared about 150 percent since bottoming out last year while Disney, Warner Bros. Discovery, and other media stocks languish.
Expectations are high ahead of Netflix’s second-quarter earnings release on Wednesday.
It’s easy to see why. Netflix’s password-sharing crackdown and ad tier are starting to pay off, and over time they can provide a revenue boost. In the first six days after its US password-sharing crackdown took effect on May 23, Netflix had “the four single largest days of US user acquisition” in the four and a half years that analytics company Antenna has tracked it. For all of June, Netflix signed up 3.5 million subscribers, the service’s best month since Antenna started measuring it.
The ads plan has gained popularity since it rolled out in November, with 17% to 19% of new subscribers signing up for the plan in the second quarter, per Antenna — and as that tier grows, so should its advertising business.
Netflix’s robust global content machine should also help it ensure subscribers still see plenty of fresh content during the strike, at least for the near term. That war chest appears to be boosting confidence inside the company, execs are projecting a business-as-usual vibe, according to recent conversations with people who regularly deal with the streamer.
“I haven’t noticed any change,” said one top agent. “They just aren’t worried, which is why they end up being the subject of so much ire. They have so much stuff.”
“There’s a feeling of, ‘We’ve spent a ton on content, and we were paying a premium they weren’t getting before,'” said a producer, referring to Netflix’s history of writing big checks to build its content library while also killing traditional Hollywood backend deals, which used to give talent more upside from a project’s success. Many writers blame Netflix for making it harder to make a living as a result, one of the conditions that led to the strike.
It’s not a concern shared on Wall Street.
With initiatives like paid sharing and ad sales, “we believe there is still a lot to like about NFLX at this level for long-term investors,” Mark Mahaney of Evercore ISI wrote in reiterating his outperform rating for the stock.
Wedbush also shared a positive note, saying it sees Netflix as “well-positioned in this murky environment as streamers are shifting strategy.”
Analysts will be looking for more color from Netflix on how subscribers are responding to the password-sharing crackdown and ad tier.
The ad market overall has been soft, which could depress Netflix’s ambitions there, at least for now. Some advertisers also wonder about the streamer’s ability to meet advertisers’ expectations for automated ad buying. “How will you go about ensuring that ad quality from third-party DSPs does not hurt the Netflix brand?” LightShed Partners asked in a note.
Netflix’s limited audience size for the ad tier (which is still only 2 percent of total subs) and its use of Microsoft to handle its ad sales have also been the subject of advertiser gripes, leading to questions about whether it will build or buy its own ad sales systems.
Subs growth for Netflix is increasingly coming from overseas, where lower pricing power could cut into its average revenue per user. And if the strike drags on, Netflix will be impacted at some point by the dearth of new content. Analysts will be waiting to hear if and how Netflix plans to change its content strategy accordingly.
There’s also a question about how Netflix’s ongoing investment in video games is going, and its interest in buying more assets, Jeffries wrote in a note.
But for now, it’s hard to be humble when you’re the only profitable streamer game in town.
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