After two consecutive quarters of subscriber decreases, Netflix stock (NASDAQ:NFLX) has shown that its growth narrative isn’t over.
The streaming service attracted 2.4 million users in the third quarter, exceeding its target of 1 million. This, along with a fourth-quarter projection of 4.5 million new subscribers, evoked shouts from the market. The stock rose 14.4% after hours Tuesday after the results announcement.
Netflix Stock: Advertising has arrived.
Netflix’s ad-based tier is slated to be online in early November, only six months after the company announced its plan to create an advertising business. It will start in 12 countries that account for 75% of TV and streaming advertising revenue, or a $140 billion addressable market.
Management said that it does not anticipate the ad tier to significantly impact fourth-quarter performance since it launched in the middle of the quarter and that it will take time to build up a base of ad-tier customers.
Netflix also has a large audience, which makes it an enticing partner for marketers, and digital advertising is a high-margin company at scale, as companies like Google and Facebook have shown.
The solution to password sharing
Another huge adjustment is also on the way for Netflix. After years of discussing a solution for password sharing, the corporation is now putting one in place. Management said that users who utilize other customers’ Netflix accounts would be able to move their profiles to their own accounts. If the original subscriber wishes to pay for them, they may open a sub-account for them.
These two developments are substantial enough for Netflix to modify the way it provides advice. It will no longer prioritize subscriber growth in favor of financial indicators like revenue, operating income, and profits per share. This is a change from the company’s and Wall Street’s conventional emphasis on subscriber growth as the most critical metric for measuring success.
With advertising and account sharing boosting income, it makes sense to minimize subscriber growth. However, the move seems to acknowledge that subscriber growth will never return to pre-pandemic levels when the firm was adding close to 30 million customers each year.
Is Netflix Stock a buy now?
Netflix averted the worst-case scenario by reporting better-than-expected third-quarter subscriber growth and forecasting even higher growth in the fourth.
The results demonstrate that Netflix stock (NASDAQ:NFLX) was oversold after subscriber decreases earlier in the year, and it was a mistake to believe that the growth narrative had ended. Though subscriber growth may be slower than in the past, the stock still seems inexpensive, selling at a price-to-earnings ratio of 27 based on this year’s predicted profits.
While Netflix’s greatest days of growth look to be behind it, the upside potential from new income sources still exceeds the stock’s negative risk from an aging industry and new competitors. It’s an excellent moment to purchase Netflix stock (NASDAQ:NFLX).
Featured Image – Megapixl © Twindesign
Author Okoro Chinedu 
