Stagnant growth forces Netflix to tap into a new market

Stagnant growth forces Netflix to tap into a new market

29 July 2021Reading time: 3 minutes

The American streaming service Netflix saw the number of subscribers grow exponentially last year after the start of the worldwide lockdown with millions of new subscribers. However, the first quarter results of 2021 clearly showed that the growth spurt has come to an end. Moreover, due to the same lockdown, its own film production was delayed and the company released less new content. Investors reacted disappointed to this news, after which the share lost 11 percent in one day, on April 20 this year.

Netflix has now been able to resume its own film production and new seasons of popular series will appear later this year. Netflix also recently announced that it will extend an important deal with Universal Pictures for the streaming rights of well-known movies.

Second quarter results

In the second quarter of this year, Netflix's total revenue grew 19 percent year-over-year to USD 7.3 billion. Thanks to the improved operating margin to 22.1 percent, operating revenues increased by 36 percent to UD 1.8 billion. The number of paying subscribers increased year-over-year by 8.4 percent to 209 million. In the second quarter of 2020, Netflix recorded an increase in paid subscribers of 27.3 percent. For the third quarter of this year, the streaming service expects an annual increase in subscribers of 9 percent and a revenue growth of 16.2 percent.

Netflix searches for new growth potential in the video game market

It still remains to be seen whether offering new video content will help drive the growth of new subscribers. With the now hundreds of millions of subscribers, the video streaming market seems to be getting saturated for Netflix. To sustain revenue growth, Netflix raised all of its subscription prices worldwide earlier this year. However, there is also a limit to this, because Netflix does not want to price itself out of the market compared to competitors such as Disney+ and Amazon Prime.

Earlier this month, Netflix announced that it would offer video games in addition to movies and series. To secure this ambition, the streaming service has enlisted the help of a former Electronic Arts (EA games) manager, Mike Verdu. Before the end of 2022, the first videogames via Netflix should be available on smartphones. Netflix has shown interest in the gaming industry for years, a market that has also expanded rapidly in recent years.

Stock price development

As mentioned earlier, Netflix's share price fell 11 percent in mid-April. In mid-June, the stockprice has increased slightly and is now (21.07.2021) at USD 531.05. However, the price is still below the level at the beginning of January this year.

The future price of the stock is subject to several political, industrial and sector specific as well as economic factors. Investors should consider these risks when making their investment decisions. Developments can be different at any time than investors anticipated on, which could result in capital losses.

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08/12/2021 15:55:55