Those two years are the only years (since 2013) when Netflix's content spend declined year-over-year (YoY). Since 2013, Netflix has achieved positive FCF in only two years - 20. The company cannot continue cutting content spend if its hopes to keep growing users, as we've shown in the past.Ĭatch 22: Lose $ or Lose Users or Both: If Netflix must increase content spend, it cannot generate positive free cash flow (FCF). Subscriber growth in the near-term may look great, but Netflix still needs to create new ways to drive user growth beyond tightening the screws on existing users.ĭecreased Content Spend Can't Last: As a leading content creator, Netflix must spend on content to maintain and increase its subscriber base. However, this action does nothing to drive demand from new users or get old non-active subscribes to pay again. Requiring shared password users to migrate to their own account or allowing existing users to share their account for a fee will certainly help boost subscriber numbers in the near-term. Password Crackdown Only Fixes Past Problems: Netflix finally rolled out its much anticipated "solution" to password sharing in its major markets during 2Q23. We should hope so because the stock is already pricing in both a significant increase in revenue and margins. With the rollout of its paid sharing (shared password crackdown) in full swing, could Netflix look to boost prices again to stoke further margin improvement? Netflix expects very little improvement in operating margins from 2Q23 to 3Q23 and pointed out that it hasn't raised prices in its largest markets since the first half of 2022. The quarter ahead looks slightly better, as management guided for a 7.5% YoY growth in revenue in 3Q23. 2.8% is well below the long-term goal to "sustain double digit revenue growth" stated in the company's 4Q22 earnings release. Slowing Growth and Further Price Increases? In 2Q23, Netflix's revenue grew just 2.8% YoY (below guidance given in 1Q23). Guidance for 3Q23 revenue came in below consensus estimates, which further highlights that Netflix is not the growth story it once was or that is implied by its current valuation, as we'll show below. Netflix added more subscribers than expected, but average revenue per membership fell year-over-year (YoY) again. What Happened?ĭuring the second quarter of 2023, Netflix missed on the top-line despite a slight beat on bottom-line earnings. ![]() ![]() While Netflix's platform and content are admirable, we believe investors should look elsewhere for stock opportunities. ![]() We believe it's time for the market to recognize that streaming is a terrible business with high costs, immense competition and very little room for profitability. ![]() Netflix's stock has historically been driven by narrative and sentiment rather than fundamentals, but for those who pay attention to fundamentals, one thing is clear: Netflix is highly overvalued and a very risky investment. Netflix's second quarter earnings continue to show that Netflix is a low-growth business with deteriorating profitability, while stock price implies soaring revenue and profits. We were not surprised to see the stock down sharply after the release. Netflix's ( NASDAQ: NFLX) second quarter results reaffirm our view that the stock remains highly overvalued and should trade closer to $153/share, instead of its current price of about $440. This article was originally published on J.
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