-Written by Shiqi-
Subscriptions of Netflix are probably not the key to revenue growth.
Netflix (NFLX) lost more than 1 million subscribers in the 1st quarter of 2022 and laid off 300 employees this year. The public was considerably pessimistic about its financial situation before 19 July, but it turned out that the revenue was still growing at a low speed.
Positive:
- Firstly, the EPS (earning per share) of Q2 is $3.24, which is higher than last year’s $3.05.
- Although the public has been shocked by the news that Netflix has lost more than 1 million subscribers this year, the revenue is not that tragic. The explanation is that average revenue per membership is the key rather than the number of subscribers. According to the table, only the Asia-Pacific region has lost a significant amount of money, which is more than 7%, while it also attracted more than two million new customers. However, the North American region saw the revenue growth of 7% compared with the prior year period, but it has lost approximately 2 million customers. The average revenue per membership of UCAN (the United States and Canada) and LATAM (Latin America) kept increasing, which led to a revenue rise, whereas that of EMEA(Europe, Middle East, and Africa) and APAC (Asia-Pacific) went down, which had revenue drop in return.
- Netflix confirmed that it has already planned to offer a cheaper ad-supported subscription tier for potential customers. If you recall your Introduction to Microeconomics 101, a cheaper subscription price will help the number of subscribers grow and given the ad-supported model, ARPM could potentially grow as well.
(in thousands, except for average revenue per membership and percentages)
Negative:
- Recently, people have had more options like Disney+, HBO Max, Hulu, Apple TV, and so on (lower prices and more popular TV series).
- Netflix has not invested in any sensational TV series after Squad Game or whatever they invested in didn’t become a big hit lately.
Conclusion:
I am bullish on Netflix in the short term. The constant revenue growth even (if it’s lower than before) combined with its upcoming cheaper ad-supported subscription (that will help price-sensitive customers back) would give Netflix a firm footing in the streaming industry. Additionally, the best situation is that Netflix is lucky enough to bet on big hit series pop up this year.