The Hollywood Reporter (Weekly)
HOW LARGE IS NETFLIX’S STREAMING LEAD? WALL STREET SAYS: A LOT
Amid slowing subscriber growth and a Holly wood pullback on content spending, has Netflix emerged from the streaming wars as the winner? Some on Wall Street are making that case. “Netflix is running away with the streaming prize while the media industry’s attempt to scale streaming appears to be failing,” Morgan Stanley analyst Ben Swinburne wrote in a June 6 note to investors, adding a snapshot of Netflix’s and its rivals’ enterprise values (a measure of market value that is more comprehensive than stock market capitalization because it adds and deducts such factors as debt and cash). Netflix’s enterprise value is “roughly equivalent” to that of Disney’s media unit (excluding theme parks/experiences/consumer products), Warner Bros. Discovery, Paramount Global and Fox Corp. — combined. Wall Street’s bullishness on Netflix marks a turnaround from last year, when investors and analysts were shocked by subscriber losses. Traditional players are hurt not only by streaming losses but also by linear pay TV cord-cutting, which hit record levels in 2022. And content spending by the four media giants is about five times that of the Ted Sarandos and Greg Peters- run Netflix, which was trading at $423.97 a share on June 12. Of course, rival CEOs will argue that there can be more than one winner in streaming, that their shares are undervalued compared to Netflix’s and that this gap can only narrow. After all, they are vowing to make their streaming businesses profitable by raising prices and slashing content and other spending, with WBD eyeing to hit that milestone in the U.S. this year. But results that instill confidence in investors won’t come overnight; the burden of proof remains on legacy media. “Investors and executives have accepted that streaming is, in fact, not a good business — at least not compared to what came before,” the analyst team at MoffettNathanson warned this year. Pivotal Research Group analyst Jeff Wlodarczak on June 9 even raised his Netflix stock price target to a Wall Street high of $535, writing, “Netflix, unlike its streaming peers, has demonstrated massive scale economies, which is evidenced by the major ramp in free cash flow in ’22/’23, a trend we expect to continue.”