Today post-market Netflix (NFLX) will release their earnings report and it should be a real doozy. Why? Because Netflix has around 232.5 million subscribers worldwide and the projection is they could reach 250 million subs by the end of 2023. That is a jaw dropping number. Add to their revenue stream of premium paid subscriptions a nascent advertising supported tier–with programmatic tech support from Microsoft (MSFT)–and you can see the trajectory of a future trillion dollar company.
Making money in the media is pretty straightforward as it’s pegged to two drivers: content + distribution. A story in the New Yorker in January shows how ambitious Netflix is in generating content within the worldwide regions they serve: https://www.newyorker.com/magazine/2023/01/16/how-much-more-netflix-can-the-world-absorb-bela-bajaria
Good content drives engagement (hours watched) and sometimes what is trending is produced outside of the United States (like South Korea’s Squid Game). Given their worldwide network of content creation and distribution, Netflix is relatively insulated from the current Writers Guild and SAG-AFTRA strikes.
Microsoft has the global reach to organize the most bespoke audience packages for media buyers. It was a bit of a head scratcher when Netflix originally selected these guys over Magnite (MGNI) to orchestrate their programmatic ad pipes, but as the dust settles from the partnership announcement it makes more sense as Microsoft is already embedded in so much of tech worldwide through Azure.
Cable and network television are quickly sunsetting and the era of streaming is officially here. Don’t forget Netflix started this trend back in 2007 when they first offered streaming and had only 7.32 million subscribers. As Netflix today approaches a quarter of a billion subs and can harness accretive revenue from an ad supported tier, they are clearly the dominant planet in the streaming galaxy.
“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.” –Warren Buffett