Netflix endless race… NFL, Squid Game 2 sweeps advertising

Netflix, the world’s largest online video service (OTT) company, is continuing its growth through restrictions on password sharing and low-cost advertising-based plans. The number of advertising plan users has exceeded 70 million, and sales are expected to grow by double digits next year. However, some in the market are pointing out that the stock price is overvalued and raising concerns about the sustainability of growth.

Stock price soaring…sales·Subscribers are also increasing

Netflix has implemented a policy to limit password sharing starting in 2021. The goal was to increase sales by cracking down on the practice of sharing accounts with multiple people. Advertising-based low-cost plans have also become a key driver of Netflix’s growth. Netflix announced that approximately 70 million people are currently watching content through advertising plans every month. This is a sharp increase from 40 million in May last year and 5 million in May last year.

The advertising plan is a method of displaying 15- or 30-second advertisements before, during, or after content playback. Viewers can use the service cheaper than the existing plan instead of watching about 4 to 5 minutes of advertisements per hour. “In countries where we offer advertising plans, more than half of our new subscribers are choosing them,” said Amy Reinhard, president of advertising at Netflix. Thanks to these measures, Netflix forecasts that next year’s sales will reach $43-44 billion, an 11-13% increase compared to this year.

The introduction of advertising rates led to an increase in new subscribers. According to market research firm Street Account, Netflix gained 5.1 million new subscribers in the third quarter, exceeding Wall Street’s expectations (4.5 million). The total number of subscribers was calculated to be 282.7 million. It also exceeded the market’s average expectation (282.15 million people). Netflix expects more new subscribers in the fourth quarter than in the third quarter.

Advertising sales are also expected to increase significantly. Greg Peter, co-CEO of Netflix, said, “Ad sales will double next year,” and “We will continue to improve our services for advertisers.”

Netflix is ​​strengthening its competitiveness through investments in sports and original content. Starting this year, Netflix will broadcast National Football League (NFL) games during the Christmas season for three years, and will release Season 2 of ‘Squid Game’ on the 26th. All advertising slots related to NFL broadcasts are sold out, and ‘Squid Game’ has established partnerships with various advertisers, including Kia Motors, in 12 countries where advertising is supported.

67% say buy…There are concerns that “stock prices are too high”

There are also optimistic predictions that Netflix will be able to raise prices based on its loyal customer base. Thomas Martin, senior portfolio manager at Global Investments, analyzed, “Netflix has room to raise prices without losing customers.” James Heaney, analyst at Jefferies, also said, “Netflix has gone from its past image as a premium service to now becoming a valuable option,” and added, “Competing services such as Disney Plus, HBO Max, and Hulu have higher prices than Netflix.” did it

43 out of 64 analysts (67.2%) gave a buy opinion on Netflix stock. Only 18 people (28.1%) had a hold opinion, and only 3 people (4.7%) had a sell opinion.

However, some analysts are warning that Netflix’s growth may be temporary. Kannan Venkateshwar, an analyst at Barclays, said, “Netflix showed excellent execution, but policies such as charging for account sharing have some aspects that hastened future growth.” He assessed market expectations as overly optimistic and downgraded Netflix stock to ‘underweight’.

Bloomberg News reported, “Some in the market are raising concerns that Netflix is ​​not producing real financial results from its advertising or video game investments and that its stock price is overvalued.” Dave Heger, an Edward Jones analyst, also pointed out, “There are signs that subscriber growth is slowing down again.”

Matthew Malay, market strategist at Miller Tabak & Co., said, “The current stock price is very expensive, so for it to rise in the future, it needs to improve its profits,” and added, “Profitability will need to be significantly increased by expanding advertising partnerships.” Analysts predict that Netflix’s stock price will be adjusted down to $804.43 in the future, which is lower than the current level (877.34, as of the 27th of last month).

There are also skeptical reactions to the price increase. Citigroup analyst Jason Bazinette warned that although the price increase announcement could boost the stock price in the short term, the stock price could eventually fall as investor expectations for next year’s expected earnings per share (EPS) are lowered.

Reporter Lim Da-yeon [email protected]