Under-promising and under-delivering seems to be working for Netflix this week. Its share price has risen 11% since July 19, when it released its second-quarter earnings report. Revenue growth slowed, but the company lost only 970,000 customers in the quarter, compared to expectations for a drop of 2 million.
Does that count as good news for Netflix right now?
So far from 2019 and through the first quarter of 2021, the streaming giant has consistently posted year-over-year revenue growth between 24% and 30%. But in the last two quarters, revenue growth has slowed to single digits, with the second quarter producing 8.6% growth while Netflix predicts roughly 5% growth in the third quarter of 2022.
This fall grace is all happening while Netflix continues to enjoy the success associated with its original programming. “Our biggest wins have all come in the last 12 months,” Ted Sarandos, Netflix’s managing director of partners, said on an earnings call with investors and analysts.
Squid Game and Stranger Things vs the competition
Although titles such as Squidward, Stranger Things, and Bridgerton have strengthened the company’s reputation among consumers, increasing competition from the likes of Disney+, Apple TV+, and Amazon Prime Video has exposed some one of Netflix’s weaknesses. See the article : Netflix is adding 21 new movies and shows this week.
In the new landscape of broadcast TV, just providing the desired content is not enough. Disney owns its theme parks, theatrical movie business, toys, and many brand licensing deals; Apple owns hardware and software packages; and Amazon is not only a leading e-commerce store, it is also a provider of cloud services for some of the biggest companies in the world, including Netflix.
So while the streaming business is crowded with technology companies capable of adding more value to its customers and stockholders, Netflix’s relative lack of diversified business operations has gradually changed its image as an early technology innovator. and turned it into a one-note unsecured business. in the future.
A Microsoft and Netflix partnership makes sense beyond their new ad deal
Theme parks and computer platforms take years to develop, so Netflix is unlikely to quickly match the diverse revenue streams of its rivals. On the same subject : Please, Health purchases funding to target the domestic sexual health care market. However, one quick path to such diversity can be achieved through a major partnership, or, more likely, Netflix’s acquisition of a major technology player.
That’s why the announcement of an agreement with Microsoft to deal with the upcoming Netflix ad-supported offering has sparked speculation that the collaboration is a precursor to the acquisition. Microsoft can provide everything Netflix needs to survive its challenges: a solid cloud infrastructure in Azure, and the widely used desktop and mobile platform Windows.
“One of the reasons we are partnering with Microsoft, [is that] there are a lot of fundamentals. They have technical capabilities, which complement ours, marketing capabilities, which we need to take advantage of,” Greg Peters, chief operating officer of Netflix, said during the earnings call. “We’ve seen a high level of strategic alignment in terms of their interest in space innovation and really working with us over the next few years.”
Additionally, Microsoft’s long-term interest in gaming entertainment ties in well with Netflix’s gaming efforts. And with Microsoft close to completing a deal to buy Activision Blizzard for $68.7 billion, moving into the Microsoft family will give Netflix quick access to the metaverse.
Who else is big enough to buy Netflix?
The latest correction in technology stocks has helped to introduce the game to Netflix in a possible place. To see also : Netflix Top Movies and Shows: What’s Happening June 25, 2022.
“You go back a year ago to [Netflix’s] ratings, and nobody would ever think it would be bought because of the high cost,” said Jon Christian, founder of technology consulting firm OnPrem. “They are still not cheap, the rating will be great. So it should be great and even entertain [access to Netflix]. “
On the other hand, he noted, “Microsoft is on the sidelines. They haven’t done anything [big in TV broadcasting]. So when you look at the acquisition targets, that’s interesting.”
Assuming that the big Hollywood studio did not act as a suitable man, the other big tech with the cash, cloud platform, and technology to boost Netflix’s fortune is Google. But its recent return to original content on its YouTube platform suggests it may be more interested in focusing on user-generated content and data.
The acquisition of Netflix seems more like a when than an if
Marketing historians will note the unique branding connection Microsoft and Netflix share. Microsoft’s old slogan, “Be what’s next” (since abandoned), sounds a lot like Netflix’s slogan “See What’s Next.” So, at least from a marketing point of view, the combination of the two models seems almost to be meant.
Netflix’s leadership is, for now, maintaining the company’s brand as independent.
“We’ve done other things with Microsoft. We’re continuing to work with them on these kind of go-to-market partnerships,” Peters said on the earnings call. “We will look for those opportunities as they exist at Microsoft, as well as other companies.”
On the other hand, investors seem to be pinning their hopes on Netflix’s plan to mirror Disney + and produce ad-supported, low-cost, which will arrive in early 2023 and could restore some of the company’s growth.
The latest data from Nielsen shows that Netflix still commands more viewing time than its competitors with 1.33 trillion viewing minutes from September 20, 2021 to May 8, 2022. Netflix predicts that it will add about 1 million new customers in the third quarter. but that’s well below the more than 8 million customers (pdf) it added in the last quarter of 2019, just before the disaster.
If Netflix’s sluggish subscriber and revenue growth continues, with the winds of competition rising, the company may have no choice but to seek refuge under the arm of a company that can help it truly compete in the new streaming landscape. .