Analyst: small ARPU rise all that’s needed for Netflix's Wall St approval

Media Investment
Analyst: small ARPU rise all that’s needed for Netflix's Wall St approval
Editor
| 07 August 2018


Research firm Ampere Analysis is suggesting that it will be relatively straightforward for subscription VOD leader Netflix to regain the confidence of the investor community after it disappointed with a million fewer paying customers than expected in its last quarter.

NetflixARPU ampere 7AUg2018The analyst says that to date, Netflix has lived by the mantra users first, profit second, concentrating on driving subscriber growth, and in doing so, created an increasing free cash flow (FCF) deficit. In 2017 that deficit stood at over $2.019 billion. It adds that even though general ARPU growth has been steady, increasing by 10% overall in 2017, and that domestic growth has continued at a higher rate than international growth, a prolonged period of international roll-out has dragged the pace of ARPU increases.

However, Ampere Analysis says that it has calculated that an ARPU growth of just $1.68 a month would render Netflix FCF neutral. It says that Netflix’s ARPU has grown by a total of $1.14 a month over the last three years, whilst the basic subscription fee has changed very little. Ampere Analysis suggests that if ARPU was increased by $2 per month, Netflix would have been in profit as far back as 2012 and most importantly would have been as much as $377.14 million by the end of the second quarter of 2018 when it incurred the ire of Wall Street.

“Netflix is a TV company, run like an Internet company. If part one of the Netflix growth story has been about customer additions, part two must be about ARPU growth,” said Ampere Analysis director Guy Bisson.”

“Switching from one to the other will be the key to long-term success. Netflix has already begun to do this by adopting the classic pay-TV strategy of introducing premium tiers. On a very low ARPU to start with, an additional spend of just $1.68 a month by each of their current customer base would make Netflix FCF neutral. With its appealing content offer and its marketing might, this looks perfectly doable. We think the Netflix story arc may be heading in the right direction after all.”