After more than two decades, the 62-year-old retired from top management. The move followed a surprisingly strong final quarter. Not least thanks to the documentary series “Harry & Meghan”, Netflix grew much faster than expected with an increase of 7.7 million users. The service is changing: a cheaper subscription plan with advertising was recently launched, and action will soon be taken against the sharing of passwords.
“Even founders need to evolve!” Hastings wrote on the company blog on Thursday. In 2020, he had promoted the long-time head of content Ted Sarandos to a dual leadership. Greg Peters, who was previously responsible for day-to-day business, is now becoming co-boss. “To be honest, the two of them have run the company more and more,” Hastings said in an interview. As Executive Chairman of the Board of Directors, he should continue to have great influence.
Netflix’s first business model was DVD rentals by mail. However, Hastings recognized the potential of streaming early on and bet on it. The next strategic step was to produce your own content: on the one hand, to save on license costs. On the other hand, because Hastings predicted that studios would keep their programs for their own services in the streaming boom. At the same time, he blocked advertising on the service, tolerated the sharing of passwords and stayed strictly away from expensive sports rights. Netflix is breaking with the first two principles.
The introduction of the cheaper subscription with advertising in November, including in Germany, was a reaction to increasing competition from more and more streaming services. Even the big rival Disney + now has a version with ads. Peters emphasized that the advertising subscription has so far mainly attracted new customers, and that there is little change from more expensive tariffs.
If Netflix finds that passwords are being shared across a household, the service plans to charge a surcharge in the future. “It’s not going to be a universally popular move,” admitted Peters. Be prepared that some users will leave Netflix, at least temporarily. At the same time, the service is preparing for additional sales through the step. And Sarandos hopes above all that the program will be attractive: “If the content works, the business will work.”
After the past year had been disappointing for Netflix for long stretches, the conclusion turned out to be much better than expected. In the three months to the end of December, the streaming service gained a total of 7.66 million new customers – instead of the expected 4.5 million. Overall, Netflix had 230.75 million user accounts by the end of the year. In addition to “Harry & Meghan”, the video service was also able to score with the series “Wednesday” and the films “Troll” and “Glass Onion”.
“2022 was a difficult year with a bumpy start, but a brighter finish,” said the annual report, looking at the weak first half of the year. Netflix had experienced a customer rush at the beginning of the pandemic, but then got into trouble with intermittent customer dwindling. In addition to the competition from financially strong rivals such as Disney and Amazon, customers’ money was no longer so easy due to inflation. Now things are going better again: In the fourth quarter, revenues grew by around two percent year-on-year to $7.9 billion (7.3 billion euros).
Although net profit collapsed from $607 million to $55 million due to unfavorable exchange rate developments, Netflix announced an increase to $1.3 billion for the current quarter. The company expects sales to grow to $8.2 billion. Overall, the quarterly report was well above the forecasts of Wall Street experts.
Netflix stock hits nine-month high
Netflix’s shares reacted to the streaming provider’s surprisingly strong quarterly figures with a price jump on Friday. In early trading, the shares gained 8.5 percent to $342.50 and reached their highest level since the price crash in April 2022. Most recently, they gained 6.24 percent in NASDAQ trading to $335.50.
The past year was largely disappointing for Netflix’s operating business, but the end of the year turned out to be much better than expected. The group was particularly convincing when it came to the increase in the number of customers, by winning a total of 7.66 million new subscribers in the three months to the end of December, thus significantly exceeding expectations.
The reactions of the analysts were not long in coming, numerous companies raised their price targets. The announced change at the top of the group played only a minor role. The streaming provider did far better than expected in the final quarter, wrote analyst Douglas Mitchelson from the Swiss bank Credit Suisse. This is thanks to an unexpectedly strong influx of customers and improved content. Also noteworthy are the advances in the advertising market and the group’s action against password sharing.
Goldman Sachs colleague Eric Sheridan spoke of a solid year-end with stronger-than-expected subscriber growth. Investors are now likely to focus on the implementation of the ad-supported offer and the restrictions on password sharing, which should serve as growth and margin drivers. After the recent price increase, however, a large part of the future momentum in the share has already been priced in, he emphasized.
Sales have met expectations to some extent, while operating profit is below his estimate but above corporate planning, noted Andrew Uerkwitz of analysis firm Jefferies. JPMorgan analyst Douglas Anmuth also praised the surprisingly strong subscriber growth. The resignation of company founder and CEO Reed Hastings to the post of executive director did not surprise him. In the current year, the expert believes Netflix is capable of accelerated sales growth and rising margins.
With the current price rally, the upward trend in Netflix shares that began in mid-October remains intact after a disastrous first half of the year. In January 2022 there was a first price slide because of a shocking outlook on the number of new subscribers. A loss of customers then shocked investors again in April: From the record high of 700 US dollars in November 2021, the price had fallen by more than three quarters.
LOS GATOS (dpa-AFX)
Leverage must be between 2 and 20
No data
More news about Netflix Inc.
Image sources: jejim / Shutterstock.com, Netflix