Netflix remains very healthy despite a slowdown in subscriber growth, with rising profits and stock prices. They moved their strategy from the rapid growth of users to increased profitability, and this move has shown itself in the remarkable financial reports that it released. In line with this, the streamer disclosed that it bet on an unexpected surge in profits bolstered by new revenue streams brought about by its ad-supported tier and crackdown on password sharing.
“Nobody cares if [Netflix] grows 5% or 20% if they aren’t profitable,” said analyst Michael Pachter, emphasizing the importance of the company’s profitability over its subscriber growth
Focus on Profitability Over Subscriber Growth
For years, the number of subscribers has long the metric of Netflix’s success. Now, as the market has matured, competition is rising from Disney+, and HBO Max, among others. Netflix has focused on profitability. In its last quarter, the company added more than 2.4 million subscribers over forecasts, at a rate much lower than those seen in earlier years. That change reflects a shift: The company decided to stop projecting quarterly subscriber numbers.
Each of those pursuits-new revenue streams such as its ad-supported service and the crackdown on password sharing one strategy for profitability that’s built on extracting more value from Netflix’s current customers.
“We’re confident this will lead to a significant incremental revenue and profit stream,” said Greg Peters, Netflix’s Chief Operating Officer.
Surge in Stock Price and Profits
Financially speaking, Netflix remains a powerhouse, and it has defied investment analysts by turning a profit of $1.4 billion in the latest quarter, well above what Wall Street had been expecting. And such strong performance sent its stock price surging 12%, further cementing its reputation as one of the resilient players in the streaming market.
While its stock is still down from pandemic highs, this renewed focus on profitability rather than chasing subscriber numbers has made Netflix a more interesting long-term investment to many analysts.”If they can grow profits, they are a more compelling investment,” noted Wedbush Securities analyst Michael Pachter.
Challenges on the Horizon
While the finances look good, concern has been raised that the ad-supported Netflix tier could see “subscriber churn” as its current higher-paying subscribers step down to the cheaper option. A number of analysts caution it would lower Netflix’s ARPU and potentially get in the way of future profitability.
In addition, weak foreign exchange rates and strong inflation finally made consumers sensitive to price increases, which also cooled Netflix’s total revenue growth. Even though profits remained robust, revenue grew by a mere 5.9% this quarter compared to 16.3% in the same period of the prior year.
Future Outlook
It also said that Netflix was looking to stay focused on profitability by investing in high-quality content, maintaining its binge-release strategy, and limiting theatrical releases of its original films.
To that end, the disciplined approach of Netflix in that regard may turn instructive for long-term sustainability, provided the long-term losses continue to dog rivals.
