Improving Content Can Drive Netflix HigherNFLX) latest quarter was a disaster as the company’s subscriber guidance saw its shares plummet over 15% in just one day. In the reported quarter, Netflix shared earnings per share of $0.09, $0.07 greater than the estimates. Revenue for the quarter came in at $2.10 billion, falling short of the analysts’ estimates by $10 million. However, that figure still shows a surge of 28 percent.
Netflix has recovered from the post-earnings debacle as the stock is currently inching towards the $100 mark. However, can it sustain its performance going forward? I think it can.
As a matter of fact, over 47 million Americans joined Netflix, but the company still believes that number could almost double before it saturates the domestic market.
According to Schackart, analysts at William Blair, there are approximately 36.4 million viewers that are not paying for subscription. Although, in reality, it is not possible for Netflix to convert all 36 million, but Schackart believes that the company can convert 3 percent of that figure into paid subscribers per year.
If Schackart’s estimate is true, the company can attain over 1 million additional subscribers every year.
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Moving on, when it comes to staying competitive in the market, content is king for Netflix. The company recently launched its new show “Stranger Things”, which was an instant hit, lashing up frenzy on both traditional as well as social media. Most importantly, Netflix is on its way to release second season of Stranger Things. To survive in this industry, it is mandatory for the company to produce original content, and Netflix is moving exactly in the right direction.
Netflix is thrusting over $1 billion in producing original shows this year, and it is obvious that the company’s budget will escalate over the next few years. However, if the company endures to deliver hit shows like Stranger Things or Narcos, it will become easy for the company to gain more profits and to appeal to more subscribers.
As long as Netflix is investing in its content, I think the stock will continue performing nicely as great content will lead to strong subscriber count growth. Although Netflix’s recent quarter was terrible, the stock has recovered entirely from the selloff and is bound to move higher in the months to come.
Published on Sep 8, 2016By Akshansh Gandhi