The success of Netflix over time – Weekly Stocktake with Dan

The success of Netflix over time – Weekly Stocktake with Dan

Weekly Stocktake with Danyaal

25 January 2023

Key Indicators

Index / Fund / Rate Start of Year Last week Wednesday This Week % change YTD
JSE ALSI 73 049 79 505 79 725 9,14%
NASDAQ Composite 10 467 10 852 11 313 8,08%
S&P 500 3 840 3 899 4 016 4,58%
Prime Lending Rate 10,50% 10,50% 10,50% 0,00%
Lunar BCI WW Flexible Fund 141,43 149,52 150,86 6,67%
USD/ZAR 16,98 17,28 17,19 1,24%
EUR/ZAR 18,44 18,70 18,69 1,36%
Brent Crude 85,95 86,29 86,19 0,28%

Source: Iress

Weekly Stocktake with Danyaal

The success of Netflix over time

Netflix have been a company that has been able to pivot their business model quite successfully over their lifetime.

  • Netflix, the streaming service that most of us use, initially started their business by delivering physical copies of Videos and DVD’s to people.
  • They then transitioned to streaming, where members pay a monthly subscription fee to watch content, they licensed from others, online.
  • Netflix then took a swing at producing their own content, that they would exclusively show on their platform. The reason for this was that popular content can be expensive to license from third parties. In 2019, it cost Netflix $100 million to secure the exclusive streaming rights for the popular sitcom, Friends. And this was just for one year.

But now, Netflix have been looking for more ways to increase their revenue. Along with gaming and live shows, they believe the below will help them increase their revenue.

  • Netflix have piloted a cheaper, ad-based subscription-service in 12 countries. They believe this will allow them to gain more revenue from advertising companies and new subscribers who want to use their service for a lower price.
  • They have also been trying to crack down on password sharing. They’ve piloted password crackdowns in a few Latin American countries. In the pilot, Netflix charged “add-on” fees to subscribers who have multiple accounts on one subscription. They believe this will initially hurt their revenue in the short term, but over the long term they will be able to gain more additional revenue from the “add-on” subscribers.

Last week Thursday – Netflix released their Q4 2022 results. During the year, Netflix added 8.91 million subscribers to their platform, bringing the total number of subscribers to 230.8 million. Netflix’s revenue for the year was $31.6 billion, up 6,5% since the previous year. Netflix’s cost of revenue for the year, which is primarily made up of what they pay for producing their own content and what they pay to license 3rd party content equated to $19,17 bn. Netflix also recorded a net profit of $4,5bn. This represents a net margin of 14,2%.

Netflix, and other streaming services pay lot of money for content. The risk, particularly with content, is that it won’t necessarily always be a hit. Streaming companies operate in a very competitive industry. Streaming services compete for screen time. They also compete with platforms such as YouTube, linear tv, gaming etc. The life of the content, more often than not, depreciates relatively quickly and so, it can become quite tough to draw revenue from the same asset over multiple years. With multiple streaming services and platforms out there, the fight for top-tier content can become particularly expensive to produce. There is also no guarantee that the content will be a hit.


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This roundup is prepared for the clients of Lunar Capital (Pty) Ltd. This roundup does not constitute financial advice and is generated for information purposes only.
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