Netflix Takes The Crown

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What's going on?

Netflix had, in its own words, a beautiful Q4 as it added a record number of subscribers far more than Wall Street expected. Investors agreed, sending Netflixs stock price up almost 10% following the news.

What does this mean?

Netflix increased its streaming revenue by 36% in 2017, adding a total of 24 million new memberships (tweet this) (compared with 19 million in 2016). Once again, investors expectations were high (its stock had already gained 17% so far this year) but once again, Netflix had no problem exceeding them. The company credits the strength of its original programming and the ongoing shift to online viewing for its accelerating growth.

Why should I care?

For markets: Netflixs business model is all about scale.

Growth is so important because Netflix is spending a huge amount on creating new programming (it spent $2 billion more than it earned last year, largely due to programming costs). The idea is that Netflixs revenue will continue to rise as subscriber growth continues apace, and that its spending on new original programming will eventually fall (relatively speaking) turning Netflix into a cash cow. The faster it grows, the closer it gets to that day and the more valuable the stock becomes.


The bigger picture: Disneys planned acquisition of Fox assets may make life harder for Netflix.

Netflixs ability to generate user growth and produce fantastic content is going to be gnawed away at by the Mouse in the coming years. Disney recently announced it would pull its content from Netflix in 2019 and create its own streaming service. It then bought most of 21st Century Foxs entertainment businesses, which will give Disney a lot of content to put on its new streaming platform (just imagine: The Simpsons mashed up with Star Wars). Disney could also compete with Netflix for Hollywoods top producers and other talent pushing up the cost of producing new shows and threatening Netflixs bottom line.

Originally posted as part of the Finimize daily email.

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