Netflix: Attracting More and More Customers Thanks to ad-Financed Subscription. Live Sports Should Keep Them Loyal!
Netflix is boosting its subscriber base with ad-supported subscriptions and live content such as sporting events and preventing more free riders. In Q2, over 8 million customers were added to 277.65 million. Live events such as tennis, golf, WWE and boxing matches make it less lucrative for customers to interrupt their subscriptions at short notice. Together with cost discipline, Netflix is now aiming to increase its margin every year. By 2024, it should reach 26%. An increase in customers and a rising margin should drive the share price....
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- Netflix is boosting its subscriber base with ad-supported subscriptions and live content such as sporting events and preventing more free riders. In Q2, over 8 million customers were added to 277.65 million.
- Live events such as tennis, golf, WWE and boxing matches make it less lucrative for customers to interrupt their subscriptions at short notice.
- Together with cost discipline, Netflix is now aiming to increase its margin every year. By 2024, it should reach 26%. An increase in customers and a rising margin should drive the share price.
The ad-financed subscription is driving customers to Netflix
The streaming service Netflix has made the right adjustments in recent years and made its subscription even more attractive. In Germany, it is possible to subscribe to Netflix from 4.99 euros per month in the ad-financed version. Compared to the standard subscription for 13.99 euros per month, this is a significant saving. The advertising for a few minutes every hour is acceptable for many users because they are familiar with it from classic linear TV. Netflix has significantly improved its customer growth thanks to the new subscription option. In Q2 2024, the company had 277.65 million paying users, an increase of 16.5% compared to the previous year. More than 8 million net new customers were gained in the last quarter. Customers were delighted with very good series such as Bridgerton S3, Baby Reindeer and Queen of Tears as well as films such as Under Paris and Atlas. Strong reviews of the content are one reason why households choose Netflix as their preferred streaming service. Next, $17 billion is expected to flow into content in 2024. In addition, the measures against password sharing are having a positive effect, which is persuading some former free riders to subscribe to Netflix after all.
Customers love live content. Live sports events are doubly positive for Netflix!
One problem for Netflix in the past was that users can cancel their subscriptions on a monthly basis as soon as they have watched interesting content. Netflix wants to change this, and the range of live sports should help. This is because regular live content binds users, who have less incentive to interrupt their subscription. Netflix has made a start with golf, tennis, the NFL, weekly live coverage of the WWE and its premium live events from 2025 and the planned boxing match between Mike Tyson and Jake Paul in November 2024. In addition to customer loyalty, such content is also exciting for advertising clients, who are willing to spend more advertising budget on Netflix. In this respect, it is likely to be the right step for Netflix to expand its live sports offering in the medium term in order to benefit from more customers and better advertising deals in two ways and to recoup the costs of the content. Netflix confirmed this itself in the last conference call. They are focusing on live content because customers love it!
Profitability is increasing and the margin outlook is becoming more optimistic
Netflix\'s growth picked up in the 2nd quarter. Revenue expanded by 17% to $9.559 billion and EPS advanced by 48% to $4.88. It is particularly positive that Netflix has succeeded in increasing profitability. The operating margin climbed from 22.4 % in the previous year to 27.2 % and is even expected to increase to 28.1 % in the current third quarter. As Netflix is performing better than expected, management raised its 2024 outlook with the latest quarterly figures. Netflix wants to grow by 14-15% instead of 13-15%. The margin is expected to reach 26% instead of 25%. Greater spending discipline will also have a positive impact. Fortunately, Netflix is striving to increase profitability every year. This should be a future price driver for the share.
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