Can Netflix Re-Invent Themselves Once Again? They Were Wildly Successful Last Time They Did It
With its second-quarter earnings announcement looming (July 20), investors are wondering whether its recently announced moves in the gaming space will be enough to revive its growth or if it must find yet another way to disrupt the marketplace, according to a new Forbes analysis.
Looking at the company’s long-term growth, it has been doing very well. Over the past 10 years, Netflix has grown at an average annual rate of about 28%, with the stock up 14,210% since July 2011.
Its first quarter of 2021 did exhibit strength, but its subscriber growth was on the disappointing side — only 4 million — about 33% below Wall Street predictions.
Second-quarter earnings, which will be reported next week, are expected to be about 19% above where they were a year ago, according to CNBC.
Netflix is already predicting they’ll add another million new subscribers worldwide — still 90% less than the second quarter of 2020, according to data from Tipranks. Comparing against the pandemic pull-forward isn’t exactly fair, however.
“We are optimistic about the future and believe we are still in the early days of the adoption of internet entertainment, which should provide us with many years of growth ahead.” the company said in a statement quoted by Forbes on Thursday.
The expected slowdown in growth from its long-term trend should be concerning to investors. The service is also seeing declining visits from its users, according to Forbes.
“We are seeing a strong decline in visitors to netflix.com across both international and US markets, which could be a sign of declining engagement in the platform,” said Ed Lavery, Director of Investor Intelligence at Similarweb.
“Growth slowed dramatically from 16% in 1Q21 to just 1% in 2Q21. Similarly, for the U.S. total unique visitors dropped from 4% YoY (year-over-year) growth in 1Q21 to -8% in 2Q21,” according to Similarweb data quoted by Forbes.
Netflix was able to disrupt the marketplace in 2007 by going all-in with the online streaming space. Prior to that, the company was known for its DVD-by-mail business — which it dominated.
Netflix is a subscription video streaming service that includes on-demand access to 3,000+ movies, 2,000+ TV Shows, and Netflix Originals like Stranger Things, Squid Game, The Crown, Tiger King, and Bridgerton. They are constantly adding new shows and movies. Some of their Academy Award-winning exclusives include Roma, Marriage Story, Mank, and Ma Rainey’s Black Bottom.
Netflix offers three plans — on 1 device in SD with their “Basic” ($9,99) plan, on 2 devices in HD with their “Standard” ($15,49) plan, and 4 devices in up to 4K on their “Premium” ($19,99) plan.
Netflix spends more money on content than any other streaming service meaning that you get more value for the monthly fee.
At the time, investors panned the online streaming model, noting the high investment needed to introduce the service, the large number of rivals, and Netflix’s lack of competitive advantage.
The company said they saw two major barriers in 2007 to widespread adoption of online streaming: Technology had not advanced enough to stream and display video quickly with high visual quality, and the reluctance of movie and TV content producers to cannibalize theater, cable, and advertising revenues.
In 2011, Netflix announced it would do something about its inability to stream new content — it spent $100 million of its own money to produce and stream 26 episodes of “House of Cards.”
When “House of Cards” premiered in early 2013, its popularity soared, as did Netflix’s stock price.
So the next obstacle before Netflix is if they can make the same sort of large-scale disruptive change in the gaming space.
Netflix has hired an ex-Electronic Arts executive to help get a piece of that arena. They’ve tagged someone from the developer relations team working with Facebook’s Oculus VR product.
The next challenge has to do with working with delivering a gaming product without buffering across all devices.
This is a road that Netflix has traversed before, but the question is whether or not time is on their side. Those familiar with the management team behind Netflix and their track record would likely say not to bet against them.
Time will certainly tell.