Update shared on05 Nov 2024
Fair value Decreased 7.24%Netflix Flexes its Pricing Power as Ad Biz Gathers Momentum.
Netflix seems to be unstoppable at the moment. Its blowout 4th quarter included:
- Record quarterly new subscriber addition of 18.9 million (+15.9%)
- 55% of new subscribers signing up from ad supported tiers, up from 50% in Q3 and 50% in 40% in Q1.
- Introduction of live events kicked off with the most-streamed sporting event in history (Jake Paul vs. Mike Tyson) and two most-streamed NFL games in history.
- Announcing price hikes in key markets.
The ad supported tiers go hand in hand with the price increases. Subscribers can pay the premium plan price or opt for a cheaper ad-supported plan. Ad revenue from those ad-supported plans should increase as the business scales, so the lower subscription price isn’t a loss for Netflix.
Revenue per user was constrained by currency effects and the growing share of ad plans, but once again I’ve underestimated ARPU and may need to amend it again.
Netflix has successfully tested its own ad tech platform in Canada and will now be rolling it out in the US and other key markets. This will give the company more control over the experience for advertisers. If they execute on this like they’ve managed to do with everything else I think they will be a preferred platform for advertisers.
Content costs and expenses were higher as a percentage of revenue which is typical for Q4, but that did mean margins were lower.
The share price sailed past my $936 fair value estimate a lot sooner than I thought it would, so I’m saying it's fully valued now. I.m happy with my assumptions for now, but may need to revise them again later in the year.
Disclaimer
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