The Strategist

Netflix shares jumped 20% thanks to subscribers growth

10/18/2016 - 14:43

On Monday, Netflix reported that number of the service’s subscribers has grown for the third quarter of this year. Now, total audience is reaching 3.2 million people, which significantly exceeded the streaming service’s own forecasts. Thanks to this, the company's revenue increased by 31% at once. This news, in turn, triggered a rapid jump in share price after close of NASDAQ trading session. Now, the company’s shares are quoted at around $ 119, which is almost 20% higher than its price at the close of trading on Monday.

Shardayyy via flickr
Shardayyy via flickr
Total number of paid users of the service is now more than 83 million. Currently, the company is present in approximately 130 markets. Active expansion was a main factor that helped Netflix achieve such significant growth in the clients’ base. The US market of streaming video services has already been formed, and is close to its saturation. During the quarter, the service connected about 370 thousand US users, which exceeded expectations by 20%. Nevertheless, the figure was 880 thousand people a year ago.

The Wall Street Journal, meanwhile, says that subscriber growth of the service has slowed. Churn, on the contrary, is growing, and competition is intensifying. The newspaper is also disappointed with growth of number of subscribers in the United States. There are 47.1 million subscribed Netflix users in the United States in total, which is far from the company’s long-term goal of 60-90 million. Some analysts assume that these targets may be unachievable, especially against the backdrop of rising prices and increased competition from Amazon, Hulu and others.

Earlier, MarketWatch published an article informing about latest rumors on Wall Street. The newspaper said that Disney company is setting sights on new assets, and apparently, Netflix looks like a tidbit for the media company.

This information was announced shortly after rumors that Disney company is pondering purchase of Twitter social platform, mainly because the latter offers development opportunities in the field of video.

As for Netflix, purchase of the service would make Disney owner of the world’s most popular Video on Demand (VOD) subscription service, and bring more than 80 million new subscribers.

Disney already owns 25% of shares of Netflix competitor Hulu service. The company also has a stake in 21st Century Fox, NBCUniversal and Time Warner. However, absorption of Netflix platform will bring the ‘Mouse House’ on a completely new level in the international market. Hulu platform left the international market in 2014. Netflix also would benefit from joining rich structure of Disney Corporation. This is particularly topical in light of the fact that Netflix plans to raise ratio of own and purchased programs in its proposal to 50/50, as well as to increase degree of localization of its services on each of 188 markets.

Disney company and Netflix declined to comment on these rumors.