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As befits the creator of nail-biting gore-fest Squid Game, Netflix understands how to serve up a cliffhanger.
The streaming giant said on Tuesday that it had picked up 19mn new subscribers in the latest quarter — nearly the population of New York state, and twice what analysts expected. Henceforth, Netflix will no longer report that metric on a regular basis. But there are clues that, like its hit Korean survival thriller, this year’s rapid growth will have a sequel.
Netflix differs from the biggest tech companies in a few appealing ways. First, it only really does one thing. Where Amazon blends ecommerce, media and satellites, and Facebook parent Meta Platforms is sinking billions into virtual reality devices, Netflix has more or less stuck to its knitting. A foray into video games could be big but isn’t yet, and is at least adjacent to the core business of filling screens with eye candy.
Second, Netflix has managed to deviate from the script when it comes to corporate maturity. While rivals such as YouTube owner Alphabet and Meta are still lavishly profitable, their operating margins have come down as they have got bigger. Netflix’s, though, are going in the opposite direction. Content is costly, but adding an extra user is essentially free. Its sales and marketing outlay has barely changed in five years.
This all points to another oddity: Netflix’s valuation. Tuesday’s after-hours pop in the share price leaves the stock trading at 41 times forward earnings, according to LSEG data. It’s now more richly priced than Alphabet, Meta and Amazon. Then again, Netflix, while planning to spend $18bn on new content in 2025, isn’t pouring cash into speculative mega-projects that may not earn their keep.
For a company that prides itself on knowing what people want to see, it may seem strange to stop reporting new-user numbers — a big driver of that generous valuation. The logic might be that “how profitable” is becoming more important than “how many”. Netflix just raised its prices. Moreover, the company is tilting more towards advertising revenue — though it unhelpfully does not disclose that number either.
Competition is fierce: Walt Disney, Comcast, Apple and Amazon all want more of what Netflix has. But that 19mn bump in subscribers will be hard to match. Disney spends more on content, yet it has half as many streaming customers. Meanwhile, Netflix shares are now double the $470 average price analysts were targeting a year ago. Unlike Squid Game, the streaming wars can have several survivors, but there is one clear winner.
john.foley@ft.com
