This is the magical business model opportunity that software provides, and which some of the world's most valuable tech companies - Microsoft Corp. Enjoy the cost advantages of scale by spreading fixed costs over a larger and larger base of paying members. These figures govern the top line.īut the way to hyper-charge profits is to increase operating efficiency.
#Netflix stock price drivers
Recall the two core drivers of Netflix's business: subscriber growth and subscription cost.
In other words, while virus-based lockdowns have benefited Netflix for now, in the long term, it's anybody's guess how the pandemic will affect future membership figures. Some of the lockdown growth will turn out to be pull-forward from the multi-year organic growth trend, resulting in slower growth after the lockdown is lifted country-by-country." The actual Q2 numbers could end up well below or well above that, depending on many factors including when people can go back to their social lives in various countries and how much people take a break from television after the lockdown. Given the uncertainty on home confinement timing, this is mostly guesswork. Our internal forecast and guidance is for 7.5 million global paid net additions in Q2. As that happens, we expect viewing and growth to decline. "Hopefully, progress against the virus will allow governments to lift the home confinement soon. Shares instantly lost more than 10% after reporting the figures.Īlthough Netflix enjoyed a substantial bump in memberships in the first quarter of 2020 - growing by 15.8 million subscribers against projections for just 7 million - the company warned in a letter to shareholders that it expects "viewing to decline and membership growth to decelerate as home confinement ends, which we hope is soon." The company goes on to say: Netflix itself had projected global paid members to increase by 5 million in the quarter, but instead the true number came in at practically half that: 2.7 million. That happened when NFLX reported second-quarter earnings in 2019. There can be hell to pay when quarterly subscriber growth doesn't meet the market's expectations.
Yes, one of Netflix's greatest virtues for investors also happens to be a double-edged sword. More fundamentally, recurring revenue businesses like NFLX are revered by shareholders because, at their best, they pay once to acquire a customer, then enjoy an eternal stream of increasing future cash flows for their troubles.Ĭon #1: Subscriber growth (recent deceleration). That's up more than 50% from its introductory price of $7.99 in 2010, which stood stagnant until its first-ever increase of $1 per month in 2014.īroadly speaking, consumers are on board with that value proposition: Netflix, which now has more than 182 million paid subscribers worldwide, was still growing revenue by 27% year over year through the first quarter of 2020 on the heels of 22.8% subscriber growth. Luckily for NFLX shareholders, Netflix is doing both, with standard subscription prices now at $12.99 a month for its standard plan, the most popular. Other than raising prices, that's the only way to grow the top line. It's no surprise that subscription-based business models rely on subscriber growth to increase revenue. Here are five pros and five cons to consider before buying Netflix stock.
#Netflix stock price tv
Today, it dominates the streaming TV market.īut does its early lead spell continued success for NFLX stock, or has the epic run-up of its share price over the years been too aggressive? Due to its first-mover advantage, Netflix quickly made mincemeat of Blockbuster.