For Netflix, a Poorer Consumer Isn’t Necessarily Bad | Tech News

For Netflix, a Poorer Consumer Isn’t Necessarily Bad

For Netflix Inc., a mild deterioration in the consumer economy is a potential blessing in disguise.

| Updated on: May 10 2023, 08:00 IST
This combination of photos shows promotional art for "Air," a film streaming on Video on Demand starting May 12 and "The Mother," a film streaming on Netflix starting May 12. (AP)

For Netflix Inc., a mild deterioration in the consumer economy is a potential blessing in disguise. To start with, the less money people have, the more likely they are to stay home, where movie-streaming became such a popular form of entertainment during the pandemic.

Then there's the impact on competitors who have been striving to make inroads into Netflix's lead. Having plowed big money into streaming services in recent years, the likes of Walt Disney Co. and Paramount Global are now making cuts in the area, deterred by the tougher conditions.

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Streaming viewership “should pick up nicely” as people stop going out if the economy slips into a recession later this year, said Matthew Maley, chief market strategist at Miller Tabak Co. LLC. And Netflix should “definitely be a beneficiary of the fact that their competition is focusing more on profitability.”

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That view is gaining traction on Wall Street. UBS Group AG analyst John Hodulik upgraded the stock to buy last month, saying the sharp change in the priorities of rivals will drive upside to subscription and pricing power in the coming years while “also keeping a lid on content costs.”

In general, analysts have been turning more positive on Netflix. About 54% of those tracked by Bloomberg have a buy or equivalent rating, the highest percentage in about a year. That's even though streaming services tend to be one of the first things consumers cut back on during an economic downturn.

Having underperformed rivals so far this year, the stock could certainly use a boost. It's been weighed down in part by Netflix's crackdown on password-sharing in some regions. That follows a rollercoaster 2022 in which it sank to a near five-year low before rallying sharply. Shares of Netflix were trading 0.5% higher on Tuesday.

Trading at 27 times forward earnings, the stock is much cheaper than its 10-year average of 77 times, though still more expensive than Disney's 21 times and Paramount's 16 times, according to data compiled by Bloomberg.

Netflix has seen its dominance of the streaming industry wane in the last five years as the likes of Disney , Apple TV and Paramount make inroads. Its global share of the market for “streaming originals” was 38% at the end of the last quarter, down from 60% at the end of first quarter of 2018, according to data from Parrot Analytics.

Not that competitors are having an easy time. Paramount Global shares plunged last week as losses from its streaming business led the media company to slash costs and its dividend. Warner Bros. Discovery Inc. reported a surprise profit in streaming TV, a rare chink of light for a company which has struggled to generate profit from its multibillion-dollar investments.

Attention will turn to Disney's earnings after markets close Wednesday to see if the company plans any further cost cuts on top of the 7,000 job cuts it already announced. While the layoffs have hit every division, they have been particularly acute in streaming.

“While there may be several winners in streaming in the long run, competitive weakness from peers will only propel Netflix forward in the short term,” said Tejas Dessai, an analyst at Global X ETFs.

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First Published Date: 10 May, 08:00 IST