Netflix stock (NFLX) is up a whopping 50% since the beginning of the year, with the company’s stock currently trading near the high end of its 52-week range.
But don’t explode Bubbly just yet. The company’s next big challenge is maintaining high and stable viewer ratings.
Netflix recently released the latest edition of its bi-annual viewership report, with the streaming giant revealing that its subscribers watched more than 94 billion hours on the platform from January to June.
Perhaps even more noteworthy, this report was the first to allow investors to understand year-over-year trends in Netflix’s global efforts. This comes after the streamer added more than 39 million subscribers in the 12 months to June.
These subscriber increases are largely due to Netflix’s continued rollout of its password-sharing crackdown and the introduction of cheaper ad-supported tiers. But the company itself has said that engagement, or viewing time spent on the Netflix platform, is a more important metric than actual subscriber numbers, especially as more competitors enter the space. .
problem? When analyzing the aggregate report, year-over-year engagement on the platform remained roughly flat. The exact reason is unknown. But if this trend continues, it could have a lasting impact on the streamer’s future.
“This lack of growth could be a concern for Netflix for a variety of reasons,” Moffett Nathanson analyst Robert Fishman said after looking at last week’s data. “First of all, if the lack of engagement growth is due to a lack of actual user growth, then that means the subscriber growth we’ve seen is simply improved monetization of the existing base, in other words. That means a de facto price increase.”
The figures show that from January to June, total engagement hours on the platform rose to 94 billion hours, an increase of just 1% compared to 93.5 billion hours watched during the same period last year. I don’t know. This was achieved even as its subscribers surged by more than 39 million people over the past year.
Meanwhile, the average daily viewing time per subscriber on the platform has declined, falling 13% year-on-year to 1.9 hours by 2024, down from 2.1 hours a year earlier.
Netflix, on the other hand, isn’t too worried. A company spokesperson told Yahoo Finance that engagement is healthy despite recent headwinds from a crackdown on password sharers. The company also noted its continued dominance in overall TV viewing, as shown in the Nielsen Gauge report.
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Still, Fishman said the lack of significant growth could mean it doesn’t have enough pricing power, the company’s ability to raise streaming prices without reducing demand. It is said that there is. Analysts speculate that Netflix is preparing for further price increases later this year.
Price ceiling?
Netflix released its bi-annual viewership report last week, and the streaming giant revealed that its subscribers watched more than 96 billion hours on the platform from January to June. (Jonathan Raa/NurPhoto via Getty Images) (NurPhoto via Getty Images)
Pricing power is especially important for streaming companies as consumers become more selective. According to Deloitte’s latest Digital Media Trends Report, U.S. consumers subscribe to an average of four streaming services and spend about $61 per month. This means your chances of retaining loyal subscribers over the long term are reduced.
On top of that, subscriber churn, or the act of paying users canceling their streaming plans, increased in August compared to the same period last year, according to the latest data from consumer measurement platform Antenna.
Across all streaming platforms, the churn rate was 5.2% in August, up from 4.7% in the same month last year as more platforms cracked down on password sharing and increased their respective prices. Netflix’s churn rate rose to 2%, up from 1.8% in August 2023, but down from 2.8% in July after the company phased out its basic tier.
The good news? Netflix still has the lowest churn rate of all major streaming players. But CFRA analyst Ken Leung told Yahoo Finance that “there’s probably going to be more of a price cap going forward than there was 12 to 18 months ago.”
Netflix’s “Basic” plan was available to U.S. consumers for $11.99 per month. The plan’s retirement comes as Netflix touts the success of its less than two-year-old ad-supported service, which costs $6.99 per month. If you want an ad-free experience, Netflix offers plans starting at $15.49 per month.
But if it can’t maintain engagement levels, that lack of growth could spill over into its nascent advertising business, weighing down its overall revenue.
“The level of engagement has a direct impact on the revenue generated by Netflix’s advertising inventory expansion,” Fishman said. “Stagnation in engagement growth may mean that ad inventory growth (per subscriber) is also stagnant.”
Achieving strong sales growth is a priority for the company, especially as expectations continue to rise. Wall Street analysts expect Netflix to see revenue growth of nearly 15% when it releases its third-quarter results on October 17th. Revenue is expected to rise about 40% from a year ago, according to the latest estimates from Bloomberg.
For the full year, Netflix’s earnings are expected to increase about 60% year-over-year to $19.08 per share, and full-year sales of $38.73 billion would represent an annualized increase of about 15%.
“The stock’s valuation tells us it’s a growth stock,” CFRA’s Leung told Yahoo Finance. “So if all of a sudden you’re doing 8% to 10% growth instead of 15%, that’s a problem and the stock price is going to fall.”
“It’s the law of large numbers,” he added. “It’s really important that Netflix can generate very strong revenue.”
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Alexandra is a senior reporter at Yahoo Finance. Follow her on X @alliecanal8193 Email alexandra.canal@yahoofinance.com.
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