Netflix will announce (PDF) its fourth-quarter results on Wednesday but for now, the company’s stock is enjoying a surge due in part to upbeat subscriber forecasts.
Netflix stock jumped 3.5% to $133.70, an all-time high, and continues to climb despite markets being closed today.
Wall Street is currently modeling Netflix’s subscriber adds ahead of the company’s forecast. The Street’s consensus is predicting 1.44 million domestic net adds and 3.73 million international net adds, outpacing Netflix’s forecast of 1.2 million domestic additions and 3.4 million international.
In the first quarter, the Street is estimating Netflix will add another 1.54 million domestic and 2.8 million international subscribers.
But despite the positive outlook for subscriber growth in the near-term, some analysts are saying that Netflix will need to rethink its strategy to maintain long-term growth. According to Barron’s, Pacific Crest’s Andy Hargreaves thinks an acquisition could be part of that strategy.
“…At current levels and with the company’s strategy well outlined, the opportunity for subscriber or pricing growth beyond our expectations is more balanced with the risk of slowing growth due to competition or other factors. Consequently, absent an acquisition, we believe the company may have to expand its strategic vision to support more than moderate annual stock appreciate. We believe the company has the asset base and ambition to do this, either by expanding into ad-supported video, broadening subscription options to leverage elasticity, or pursuing tangential opportunities,” wrote Hargreaves.
Indeed, the competitive landscape for Netflix continues to change, and challengers continue to threaten the company’s lead in the SVOD space. Amazon recently unveiled its international expansion plans for Prime Video, representing a big challenge for Netflix in important international markets. Domestically, Hulu could potentially eat into Netflix’s subscriber growth opportunities if its soon-to-be-launched live TV feature attracts more consumers.
In the near-term, outside of an acquisition or strategy overhaul, Netflix might need to elevate its marketing efforts if it is to maintain its momentum, according to one analyst.
“Netflix has done a very good job driving subs via nontraditional forms of marketing—much better than traditional networks,” wrote Jefferies analyst John Janedis in a research note. “As both penetration and competition increase, NFLX may find a need to augment its current marketing with more traditional platforms.”
For 2017, Janedis predicts Netflix’s marketing expenses will remain elevated at around $1.26 billion, a 25% increase year-over-year. Among the reasons for the increase is the fact that Netflix intends to greatly expand its original content output, jumping up from around 600 hours this year to about 1,000 hours in 2017.
“Marketing spend is closely tied to original programming, as the success of this content has been a key factor in building the NFLX brand,” Janedis wrote. “After spending $2.6M in marketing / hour in '15 and $1.7M / hour in '16 (JEFe), our '17 estimate reflects a marketing spend of $1.3M / hour.”