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Home›Japan company›This quote from Netflix’s CEO spells great news for the company’s future

This quote from Netflix’s CEO spells great news for the company’s future

By Jane R. Chase
July 26, 2022
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Mall investors delist netflix (NASDAQ:NFLX). Although the company’s shares jumped slightly after its last quarterly update – mostly due to better-than-expected subscriber loss figures – the stock is still down 63% year-to-date. But is this an overreaction to Netflix’s troubles? I think so.

While Netflix certainly has some work to do, there are significant long-term tailwinds working in its favor. During the company’s second quarter earnings call, co-CEO Reed Hastings made a prediction investors should pay attention to. Let’s see what Hastings says and what it could mean for the future of the company.

The end of an era?

Despite a recent downward trend, paid Netflix subscriptions have been on an upward trajectory for over a decade. The company ended the first quarter with approximately 221 million paying members. However, the company does not believe it has reached its peak. Hastings said on the July 19 second-quarter earnings call, “But looking forward, streaming works everywhere. Everybody’s streaming in. It’s the end of linear TV in the next five or ten years.”

Remember that Netflix was the pioneer in the transition of audiences from linear television to streaming. Outside of China, there are between 800 and 900 million broadband or pay-TV homes worldwide, according to the management, meaning this form of entertainment is barely dead. Data showed that in the third quarter of last year, cable and broadband still controlled 64% of television time in the United States, a country where streaming has reached higher penetration rates than in the most other places.

If linear television were to disappear within 10 years, this would present a huge opportunity for subscribers and viewing time to move to streaming platforms. Netflix wouldn’t be the only beneficiary of such a result – the streaming industry is highly competitive. But it would undoubtedly be one of the biggest winners, given the brand it’s built in the industry and its large library of content, which has racked up dozens of awards over the years.

The long term vision

Is Hastings right that linear television will be gone in 10 years? No one can say for sure, but it seems highly unlikely to me. To be clear, the cord-cutting trend has been well-documented, and streaming should eventually overtake linear TV. Data shows that millennials and Gen Z audiences are more likely to subscribe to streaming services than baby boomers.

However, this evolution will take much longer than 10 years. So what does this mean for Netflix and its shareholders? It’s easy to focus on the last few quarters when Netflix’s subscriber count has declined sequentially.

But zooming out helps. In terms of subscriber growth, Netflix’s long-term horizon might look somewhat like the past. Meanwhile, revenues continue to grow, albeit at a slower pace. In the second quarter, the company’s revenue increased 8.6% year-over-year to $8.0 billion, partly due to an increase in average revenue per subscription and despite losing about 970,000 subscribers.

Additionally, engagement is on the rise for the company. It commands more and more viewing time. From June 2021 to June 2022, Netflix’s share of US TV viewing time increased by 1.1 percentage points to a record high of 7.7%. The company’s free cash flow for the quarter was in the green — $13 million — from the negative $175 million it reported a year ago.

Netflix is ​​targeting $1 billion in free cash flow this year. The company hasn’t made a habit of delivering positive numbers in this area for most of the past decade, so that’s an encouraging projection. This can give Netflix the flexibility to produce even more quality original content, which means even more engagement and watch time.

Don’t Give Up Netflix Yet

Netflix has encountered many headwinds in its streaming history. Maybe his current issues are a bit more difficult to deal with, but there’s still plenty of fuel for growth. Netflix management has steered this ship too well in the past to let it sink now.

The company is testing solutions to some of its issues, including the password sharing issue. More quality content is one of the answers to competition. And Netflix is ​​still going out of the park in this area. Short-term issues may continue to plague Netflix, but the company’s future still looks bright.

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