Netflix’s big game is just beginning

This year was actually a huge success for Netflix. The company — already Hollywood’s largest streaming video provider by far — is on track to grow its annual revenue more than twice as fast as 2023 and grow its subscriber base more than any other year, excluding the Covid-induced surge in 2023 2020. This is due to an unusual mix of hit shows, forays into live events and a crackdown on viewers who borrowed other people’s passwords.

Netflix also ended a strong year with good results. The live broadcast of two NFL games on Christmas Day was a huge success: The games each averaged more than 24 million U.S. viewers, and Beyoncé’s halftime show during the Ravens-Texans game peaked at 27 million. Those numbers broke previous streaming records for NFL games, and Netflix pulled off the event without the major technical issues that marred last month’s live boxing match between Mike Tyson and Jake Paul.

Thursday marked the debut of the second season of “Squid Game,” the South Korean drama that scored 2.2 billion hours watched in its first season, making it the most popular Netflix series of all time.

Last week’s NFL broadcast and deal to stream the next two Women’s World Cup events suggest that Netflix is ​​finally on the verge of becoming a major player in live sports – one of the few areas of broadcast television that that it has not yet completely revolutionized. That would further cement the company’s position as the undisputed winner in the streaming wars, even if the rest of Hollywood still has to catch up.

That hope has helped Netflix’s share price rise about 90% so far this year – making it the stock’s best annual performance since 2015. Netflix now has a market cap of just under $400 billion, which is roughly the same as Disney’s combined market cap. Comcast, Warner Bros. Discovery and Paramount Global. The stock is also currently trading at just under 39 times forward earnings, well above all other media companies and at a premium even to mega-tech companies like Apple, Amazon and Google, which also operate major streaming services.

Can Netflix live up to this value? The large amount of new content this month is expected to provide a significant boost to the company’s already large global audience. Analysts currently expect Netflix to add about nine million net new subscribers in the fourth quarter, according to consensus estimates from Visible Alpha. That would be the most new subscribers in the year-end period, excluding the fourth quarter of last year, when the crackdown on password sharing helped boost new additions to 13.1 million in the period.

However, sustaining this growth is becoming more difficult than ever. According to Netflix, its fourth-quarter report on January 21 will be the last time the company publicly reports its subscriber numbers. This could offset some of the volatility the stock has experienced in the past following the company’s reports, as investors have long focused on subscriber growth to the exclusion of everything else. But it also poses a greater challenge to Netflix’s ability to reliably grow revenue through price increases and advertising — while meeting expectations. Note that the company’s revenue forecast has missed Wall Street consensus targets in eight of the last 10 quarterly reports, according to FactSet data.

Many analysts remain positive. In a report on Monday, KeyBanc Capital’s Justin Patterson acknowledged that the stock is in a “valuation-threatening zone,” but added that the company’s strong operating profits compared to other streaming rivals “provide Netflix with sufficient flexibility to move in.” Investing in growth while competitors must increasingly weigh trade-offs between growth and profitability.

Others are less confident; According to FactSet data, 57% of analysts rate Netflix shares as a buy, compared to 62% at the start of the year. “Optimism in the advertising industry appears to be priced in,” Citigroup’s Jason Bazinet wrote earlier this month in a report on the outlook for Netflix’s fledgling advertising business. And MoffettNathanson’s Robert Fishman called Netflix shares “massively expensive” in a report that followed the company’s. last quarterly results in October, when the stock was about 26% below its current price.

Netflix has delivered a good show this year. His encore must impress even more.

Write to Dan Gallagher at [email protected]