Netflix soars as earnings highlight dominance in 'streaming wars'

24.01.2024

On Wednesday, Netflix experienced a significant surge of 10% in its stock value, solidifying investor confidence in the company’s triumph in the streaming industry. The remarkable growth in subscribers, attributed to its crackdown on password-sharing and a robust content lineup, contributed to the surge.

With a premarket gain that could potentially increase its market value by approximately $20 billion, Netflix’s share price stood at $542 before the market opened. The company reported a notable achievement in the fourth quarter, with 13.1 million new subscribers – its most substantial growth since the onset of the pandemic, surpassing the estimated 8.97 million subscribers.

Analyst Jeffrey Wlodarczak from Pivotal Research Group expressed the belief that Netflix has emerged victorious in the streaming competition, citing the impressive results and guidance relative to its peers. Wlodarczak raised the stock’s price target to a Wall Street high of $700, with several other analysts following suit, collectively pushing the median view to $515.25, nearly 5% higher than Netflix’s last closing price.

In terms of valuation, Netflix’s stock commands a premium compared to competitors, trading at almost 30 times its 12-month forward earnings, in contrast to Walt Disney Co’s 20.41, as per LSEG data. Some analysts argue that this premium might be justified, anticipating that other streaming platforms’ pursuit of profitability will lead them to license more content to Netflix. This, in turn, could drive up subscriber growth and average revenue per user for Netflix.

During the earnings call, Netflix highlighted strong demand for licensed titles like “Young Sheldon,” while its Q4 lineup featured noteworthy releases such as the final season of “The Crown” and David Fincher’s film “The Killer.” The company plans to allocate up to $17 billion for content this year, aiming to recover from disruptions caused by Hollywood strikes in the previous year.

Additionally, Netflix is intensifying its focus on live programming, as evidenced by a more than $5 billion rights deal announced on Tuesday. This deal secures exclusive rights to World Wrestling Entertainment’s “Raw” and other programming starting in January 2025.

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, emphasized the significance of Netflix’s substantial investment in original content, acknowledging the associated costs but highlighting that this commitment is pivotal in maintaining the company’s competitive edge.