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As befits the creator of a bloody and biting festival Squid GameNetflix knows how to deliver a cliffhanger.
The streaming giant said on Tuesday that it had recovered 19 million new subscribers in the last quarter: almost the population of New York state and double what analysts expected. Moving forward, Netflix will no longer report that metric on a regular basis. But there are signs that, like his hit Korean survival thriller, this year’s rapid-fire thriller will have a sequel.
Netflix differentiates itself from the biggest technology companies in some attractive ways. First of all, it really only does one thing. While Amazon combines e-commerce, media and satellites, and Facebook parent Meta Platforms is investing billions in virtual reality devices, Netflix has more or less stayed true to its fabric. A foray into video games could be big, but it’s not big yet, and at least it’s adjacent to the core business of filling screens with eye candy.
Second, Netflix has managed to go off script when it comes to corporate maturity. While rivals such as Alphabet, which owns YouTube, and Meta remain hugely profitable, their operating margins have declined as they grow. Netflix’s, however, go in the opposite direction. Content is expensive, but adding an additional user is essentially free. Its sales and marketing spending has barely changed in five years.
All of this points to another oddity: Netflix’s valuation. The share price surge after Tuesday’s close leaves the stock trading at 41 times forward earnings, according to LSEG data. It is now priced higher than Alphabet, Meta and Amazon. On the other hand, Netflix, while it plans to spend $18 billion on new content in 2025, is not investing money in speculative megaprojects that may not earn their keep.
For a company that prides itself on knowing what people want to see, it may seem strange to fail to report new user numbers, a big driver of that generous valuation. The logic could be that “how profitable” is becoming more important than “how many.” Netflix just raised its prices. Additionally, the company is leaning more toward advertising revenue, although it is useless to disclose that figure either.
The competition is fierce: Walt Disney, Comcast, Apple and Amazon want more than Netflix has. But that increase of 19 million subscribers will be difficult to match. Disney spends more on content, but has half as many streaming customers. Meanwhile, Netflix shares are now double the average price of $470 that analysts were targeting a year ago. Unlike Squid GameThe streaming wars may have several survivors, but there is a clear winner.