Netflix, A Defensive Stock for a New Era

On the morning of the 18th Korea time, Netflix (NFLX) reported the best quarterly results in its history. This outcome was largely anticipated, but it can also be interpreted as evidence that the U.S. economy is actually not in great shape.

In “The Great Bundling Era Amid Austerity, as Told by BALAAN”, the author explained, "Bundling in the streaming (OTT) industry has recently been accelerating, and as mentioned in the piece, that is because, aside from Netflix, there are effectively no streaming companies generating profits. Disney (DIS), which had halted licensing its content to other streaming platforms when it launched Disney+, is once again supplying content to Netflix, and U.S. cable TV company Comcast has begun selling bundles that package multiple streaming services such as Netflix, Hulu, and Apple TV+." In the era of quantitative expansion, “content” was what mattered most, but now the importance of “distribution” is rising even further.

Although Netflix’s subscription prices have been steadily climbing, there still are not many entertainment options that the whole family can enjoy for under $20 a month. A single trip to the movies can cost around $20 per person, and thanks to the bundling trend mentioned earlier, Netflix has started to receive third-party content again in addition to what it produces in-house. This means that Netflix has secured a dominant position as a distribution platform for video entertainment content and is on track to structurally replace the U.S. cable TV industry over the long term. The company’s recent push to strengthen live sports streaming—such as the NFL—which used to be considered the domain of traditional cable TV, is very much in line with this direction.

Netflix announced that first-quarter revenue rose 12.5% year over year to $10.5 billion. Net income increased about 24% to $2.9 billion, beating its own forecast of $2.44 billion.

Thanks to recent price increases, steady membership growth, and new advertising revenue, the company expects even stronger revenue growth in the second quarter.

The first-quarter operating margin came in at 31.7%, exceeding both the 28.1% recorded a year earlier and the initial forecast of 28.2%. Free cash flow during the period rose 25% to $2.7 billion.

Revenue and earnings growth prospects remain solid, and Netflix has not changed its guidance for revenue or operating margin.