Expert reveals why Netflix fell short of analysts’ prediction in 2022

Global streaming service, Netflix, saw its global  paid streaming memberships last week fall short of analyst prediction, recording 221.6 million for the first quarter of 2021, against earlier predictions of nearly 3 million.

Analysts who spoke during the On the Money, a weekend conversation by analysts on Clubhouse, organized by Nairametrics said the drop in membership is tied to its subscription-based model as well as economic factors which has made subscribers to prioritise their budget amongst other factors.

What the expert is saying

Ugo Obi-Chukwu, Founder of Nairametrics, said the inability to meet analysts’ projections may be due to the increasing level of competition from other streaming platforms.

He said, “Over the last decade, Netflix has probably reigned as the number one streaming platform in the world and their model has been the way to go even though it has been criticized. Rather than the cable model we were operating, Netflix just allows a pay-subscription fee and has access to the world of movies and that has really worked. The growth prospect has been increasing but it appears they have reached the peak and they are not growing as fast as they should and that’s also because a lot of people have a Netflix account already.”

Obi-Chukwu also pointed out that other reasons could be the result of over projection combined with inflation which has crept into people’s pocket and the increasing competition. “It appears that analyst may have mis-projected the strength of the subscriber base. I think at some point, people were thinking we have like two billion subscribers or so but it appears that Netflix has just over 200 million subscribers. The likes of Amazon prime and the others also offer good packages as well,” he stated.

“And inflation is part as well; People are looking at their budget and also cutting on how often they pay for subscription. Netflix also faces the challenge of people sharing account,” he added.

Commenting on the company’s general performance, he said, “Netflix is incredibly profiting as well. Their result in terms of number wasn’t that bad. It’s a company that continues to grow its revenue but the challenge is that Netflix valuation today is essentially based on its ability to continue growing and that is what a lot of people don’t understand.

“In the US, some companies are not valued based on their bottom line; profit or earnings, they value them based on their growth prospect. If you have these factor, that would typically drive growth and to continue to propel that growth, they would continue to assign huge valuation to them and that’s why you see Tesla trading at hundred or thousand times its earnings.

“For Netflix, people are valuing Netflix based on ability to grow that subscriber base because if you can continue to grow that subscriber base then you can continue to hit those growth revenue numbers.

“The management team said they were going to introduce ads to curb this but Netflix has never wanted ads. He loathes advertising but prefers subscription model. But that love for subscription model does not override the love for what its customers want. According to Reed Hastings, what its customers want are cheap model even if it requires advertising.”

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