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Netflix is on sticky grounds

Netflix is on sticky grounds

despite producing blockbuster content such as Squid Game, Maid, and Emily in Paris, the streaming platform saw a subscriber decline.
February 9, 2022
3 min read
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Netflix is on sticky grounds

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the Netflix management is frustrated with India. no, really. the OTT platform had a breakthrough moment in 2021 with their Korean dystopian thriller Squid Game. it was streamed for 1.65 billion hours in its first four weeks and became the biggest series for the OTT giant. 

Netflix CEO Reed Hastings had said during the fourth-quarter earnings call that in every single other major market, they have got the flywheel spinning. and he added that they are frustrated about not being as successful in India, though they are staying put. 

while country-specific numbers are not disclosed by the streaming platform, Netflix fell short of the new-subscriber projections globally by adding 8.3 million as against the forecasted 8.5 million. 

so it is not just India that is a concern, but the rising competition globally. for the first quarter of 2022, it has given a forecast to just add 2.5 million subscribers compared to 4 million in the same period last year. this effectively means that there is a 50% decrease from its 2020 numbers that were largely aided by the pandemic. 

following this announcement, the stock slumped, erasing $50 billion from its market value. later, analysts such as Macquarie Research’s Tim Nollen cut the stock rating from neutral to underperform on the back of slowing margins.

feeling the heat

competitors are closing the gap with the platform. Netflix is facing the heat from HBO Max, Disney+, and AppleTV+. 

in the United States, which is Netflix’s biggest market, AppleTV+ is slowly gaining market share. as new streaming platforms get added globally, the rivalries are only set to get bigger. 

the company partly admitted this. In its earnings statement, Netflix said that competition has only intensified over the last 24 months and that this has impacted their margin growth. to deal with this, the company is reinvesting cash into the core business and funding new growth opportunities, such as gaming.

for the business to grow, markets like India need to perform. in India, Netflix is still a distant third in the OTT space. according to research firm Media Partners Asia, Netflix has a subscriber base of 5.5 million in the country. Disney+Hotstar has 46 million subscribers while Amazon Prime Video has 22 million. 

to keep pace with the competition, Netflix also slashed the rates of its basic plan in the country by 60% to Rs 199 per month. this is even as the platform is investing Rs 3,000 crore to develop original content in India.

will diversification pay off?

at present, Netflix is dabbling with too many things apart from its core content focus. there’s gaming where the OTT platform is forging new partnerships to expand the number of titles on offer. 

it is getting into children’s content and is launching a magazine for preschoolers. In addition, a lot more animation content including games and videos is also expected with the platform launching an Anime Creators’ Base located inside their Tokyo office. this community space will host designers, writers, and Netflix team members working on bolstering their anime lineup. 

competitors, however, are moving aggressively to capture markets. Amazon Prime Video has already beaten Netflix in Germany, while HBO Max is expanding its services to another 15 countries in March. and Disney+ is all set to enter 42 countries. 

meanwhile, Netflix announced during its earnings that its Q1 guidance reflects a more back-end weighted content slate. in addition, the OTT company also said that while retention and engagement remain healthy, acquisition growth has not yet re-accelerated to pre-Covid levels. the company blamed the ongoing Covid overhang and macro-economic hardship in several parts of the world, such as Latin America, for the slowdown.

but analysts aren’t giving up yet. on January 31, Citi upgraded the Netflix stock along with Spotify from neutral to buy. the investment firm said that even as Netflix shares have slumped 32% in the past 30 days, the firm has ample pricing power. 

and CEO Hastings remains a firm believer in the company. according to filings with the Securities and Exchange Commission Friday evening, Hastings bought $20 million worth of Netflix shares on January 27 and 28. 

hedge fund manager-investor Bill Ackman is bullish on the stock too, calling it priced at an attractive valuation. Ackman also said that the hedge fund’s best investments have emerged when other investors with short-term outlooks discarded great companies at attractive prices. 

there is no taking away from the fact that Netflix has stumbled in its margin and subscriber growth journey. however, the key messaging here is that Netflix may be down temporarily, but its story is far from over.