Interview Synopsis

Netflix – Growth Strategy & Q4 2022 Business Update

  • Public Equity
  • TMT
  • North America

The first and second quarters of 2022 – the start of the inflationary period – were “shaky” for Netflix, but also a time for the company to reevaluate its spending and strategic goals, a former executive at Netflix Inc told Third Bridge Forum. 

We heard advertising will be a major growth catalyst going forward for the streaming giant, which has also shifted its focus to content quality over quantity, and driving acquisition, retention and engagement.

The specialist said they are confident that Netflix will achieve its goal of 4.5 million subscribers added for Q4 2022 given the launch of its advertising video on-demand (AVOD) plan. With the AVOD launch, the expert believes Netflix should be able to generate at least USD 3 of ARPU on the low end and potentially USD 5-6 on the high end, depending on its foray into live sports.

As for the company’s target of 40 million global viewers by Q3 2023, the “wild card” is the US, we were told. “They’re so highly penetrated here domestically, if they’re not able to increase the TAM with this new AVOD plan, that 40m is going to be pretty hard to achieve in Q3 of 2023.” 

The expert also noted that since Netflix lost subscribers in Q1 and Q2, subscription video on-demand (SVOD) is being measured in revenue terms. “I think that change is forcing a lot of the competitors in the space to really evaluate cost, to really evaluate the content span.” They said Netflix has an advantage because it will be “cash flow positive in 2023”, potentially achieving a margin of 20-23%. “They are just in a much different place than their competitors,” the expert said.

We also heard that gaming could be a significant opportunity for Netflix, with the expert saying that it only needs “one hit”, which, if tied to IP, could be powerful from an engagement and retention perspective.

And industry consolidation could soon be on the horizon, as the expert believes seven players is too many in what is an increasingly crowded market. They remarked that studies suggest that three is the magic number for SVOD subscriptions and ranked Netflix number one, followed by Disney. “Then there are four or five other players vying for that third spot,” they said.

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The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.

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