Netflix soars as earnings highlight dominance in ‘streaming wars’

January 26, 2024 - 4:30 PM
851
The Netflix logo is pictured on a television in this illustration photograph taken in Encinitas, California, U.S., January 18, 2017. (Reuters/Mike Blake/File Photo)

Netflix soared 11% on Wednesday as its blowout subscriber growth cemented investor confidence the firm has won the streaming wars with its password-sharing crackdown and a strong content slate.

The company said on Tuesday 13.1 million signed up for its service in the fourth quarter, marking its best growth since the start of the pandemic and handily beating estimates of 8.97 million subscribers.

The streaming pioneer’s shares were trading at a more than two-year high. The company was set to increase its market value by more than $20 billion, if the gains from early trading hold.

Netflix has already won the streaming wars and this type of strong result/guidance, especially relative to its streaming peers, is what winning looks like,” said Pivotal Research Group analyst Jeffrey Wlodarczak.

Wlodarczak raised his price target on the stock to a Wall Street high of $700. Overall, more than half of the 44 analysts covering Netflix NFLX.O raised their targets, pushing the median view to $554.

The company’s stock commands a premium relative to rivals. It trades at nearly 30 times its 12-month forward earnings, compared with Walt Disney Co’s DIS.N 20.41, according to LSEG data.

Some analysts believe the valuation could be justified as the ongoing push for profitability at other streaming firms will force them to license more titles to Netflix, which may help Netflix drive up subscriber growth and average revenue per user.

The firm highlighted strong demand for licensed titles such as “Young Sheldon” in its earnings call on Tuesday. Its slate of shows in the fourth quarter also included the final season of the “The Crown” and David Fincher’s film “The Killer”.

The company plans to spend as much as $17 billion on content this year, after last year’s dual Hollywood strikes by actors and writers disrupted some productions.

Netflix is also ramping up its bets on live programming and unveiled a more than $5 billion rights deal on Tuesday to bring World Wrestling Entertainment’s “Raw” and some other programming exclusively to its service in January 2025.

“It (original content) doesn’t come cheap, and some would balk at Netflix‘s annual content budget, but it’s this investment that keeps Netflix‘s frame gilded,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.

— Reporting by Aditya Soni in Bengaluru; Editing by Shounak Dasgupta