Fuel for Netflix’s Engine
In mid-March, Netflix shares found themselves at $332, which was approximately the level they were at before the dramatic rally that began in March 2020. 2022 started off with less than a bang for the video streaming company, which saw shares lose a huge 35% of their value in the first three months. This had a lot to do with the company’s lower-than-expected projections for new subscriptions in Q2. Other challenges faced by Netflix have included a return to pre-pandemic entertainment in the form of movies theatres and theme parks, and the fact that Netflix has faced some aggressive competition from the likes of Disney+ and Apple TV+. Lastly, we can’t overlook the hesitation many people feel about trading the price of tech stocks in the light of the US Federal Reserve’s new hawkishness.
It wasn’t all dark skies in March, however. By the third week, Netflix share prices climbed up by a solid 12%, partly driven up by a broader lift-off in the S&P 500, which gained over 6% following interest rate hikes and tentative hopes of a ceasefire in Ukraine. Other factors played roles in driving this rally too, one of them being raised subscription prices in the UK and Ireland, which saw Netflix’s basic plan rise by 10%. Another factor was the progress the company made in preventing subscribers from sharing their passwords, with plans to charge an extra $2.99 to South Americans who want to share their subscriptions. Will these latest moves keep share prices on the up and up, or will the summer months take people away from their at-home entertainment? Let’s take a closer look at Netflix’s share trading prospects to gain a better sense of what may be ahead for those who trade shares as CFDs.
What moves Netflix shares?
If we look back to early October 2021, we see company stock surged by more than 4% in a single week to touch a new high point of $613 a share. In this case, the motivation seemed to be a couple of announcements by Netflix’s chief content officer, Ted Sarandos. The first of them was that the company’s recently launched Squid Game had already become the most successful Netflix original production, outperforming other hit shows like Money Heist and Lupin. The other announcement that encouraged traders was that videogame company Night School Studio was joining the Netflix family, producing free games for all subscribers. If successful content is a big driver behind share performance, the company’s efforts in creating solid, locally resonant content may bear fruit down the line. Coming into this year, Netflix said they were committed to creating “Locally authentic stories that will resonate” in the cultures of as many as 45 countries around the world.
Going back even further, to the beginning of 2021, share prices suddenly shot up over 9% in after-hours trading after the announcement that recently introduced price increases in the USA and UK had beefed up revenue by 24% to $6.6 billion in the previous quarter. Indeed, Susannah Streeter of Hargreaves Lansdown said that “Price increases… would certainly help the bottom line”, for the company. The power to increase revenue through changes in pricing is a fuel that moves Netflix shares.
In terms of new sign-ups, consider that more than 80% of new subscribers in 2020 were from outside the USA and Canada, and that Netflix shows have proven their ability to appeal across cultural divides. For example, Lupin, which is a show produced in French, became a number one hit in Germany, Argentina, and Brazil. Media analyst Michael Nathanson believes the company’s growth will mainly come from customers in the Asia Pacific. Mark Mahoney of Evercore ISI says that 90% of the company’s gains in 2022 will be outside of the USA. Since there may be a considerable untapped customer base in Asia, further growth for the company seems more than feasible.
Another thing that looks good for Netflix is the company’s extensive library of content, not to mention their continuing efforts to improve their quality and quantity. These could be key factors in supporting share trading prices this year. Netflix also enjoys a good share of customer loyalty, which works in their favour and maintains their power to hike prices. Looking back beyond the disappointing start to this year to the beginning of 2020, we see Netflix has expanded its customer base by 33% since then, which shows a potential for growth that should not be forgotten.
If you’re planning to trade shares of Netflix as CFDs, take note that their share prices are no stranger to volatility, and hinge on a variety of factors. At the same time, remember that, “2022 should prove that no one single company has a monopoly on great content”, in the words of Michael Nathanson, and we can expect enticing content packages to come out of Disney+, Apple TV+, and other video streaming companies in the months to come. If you’re involved in CFD share trading, keep an eye out for new launches of content or services from any of the entertainment giants in order to make more informed trading decisions.