Yahoo Finance Netflix has ‘won the streaming wars’ but can it prove its ads business?
Netflix has blown all of its streaming competition out of the water according to analysts, who are closely watching the streamer’s ads business for signs of pickup as subscriber additions are expected to cool soon.
In a trading update on Tuesday evening, Netflix reported 13.1m new subscribers for its fourth quarter, beating the consensus estimate of 8.9m, and up from 7.7m from the same period in 2022.
This helped it to bump full-year revenue up by 12 per cent year-on-year to $33.7bn (£26.5bn) while operating income amounted to $1.5bn (£1.2bn) in the final quarter, also exceeding forecasts.
“These latest results reaffirm that Netflix is firmly the king among all streamers,” said media analyst and founder of PP Foresight, Paolo Pescatore.
He added that Netflix’s recent move to offer a cheaper ad tier has proved to be a smart one as demand for lower-priced streaming services continues to grow, defying some predictions that the business is maturing.
Pescatore said it will be a “pivotal” year for Netflix’s ads business, which is just getting going.
The streaming giant introduced its paid ad-supported tier in late 2022 in an effort to win over cash-stripped viewers.
Currently, only nine per cent of Netflix’s customers pay for this cheaper service, which Ben Barringer, technology analyst at Quilter Cheviot, said will need to hit 40 per cent to class as a good result.
“Its advertising tier has had a decent start,” he said, adding that Netflix is also investing in technology to improve ad targeting.
The strong earnings update shows that “Netflix has ultimately won the streaming wars”, Barringer said. “Legacy TV business simply have not been able to keep up.”
It trails an announcement that Netflix has just agreed to a $5bn deal to screen World Wrestling Entertainment’s (WWE) flagship weekly programme Raw, which is notoriously strong for advertising, especially among younger people.
But subscribers look likely to flatten out in the first quarter of 2024, with Netflix forecasting 4m additions.
Vice president research director at Forrester, Mike Proulx, said Netflix’s ability to drive up margins will hinge on the success of its ad business in 2024.
Proulx said: “This is dependent on continued scaling of its ad tier as well as innovative ad types and sponsorships that breakthrough.”
“Since just about every streaming service has jumped on the ad-tier bandwagon, advertisers have a lot more choices in the CTV space,” he added.
Revenue growth may have to be driven by more price hikes instead, something that analysts agree Netflix can do quite easily without too many customer tears.
Following its earnings, Netflix shares jumped more than seven per cent in after-hours trading. On Wednesday they remained in the green, up 1.3 per cent at midday. The stock still lingers over a fifth below the height of its pandemic glory days, however.
