While Netflix did not win the 45.6 billion Korean won available in Squid Game, the hit series, along with Money Heist, has propelled the company to a strong showing in its 3QFY2021.
With this, PhillipCapital analyst Jonathan Woo has maintained his “accumulate” call on Netflix with an unchanged target price of US$724 ($975.76)
Woo notes that the company’s 3QFY2021 results are “above expectations”, adding that YTD FY2021 revenue and profits after tax & minority interests (PATMI) is at 75% and 101% of his FY2021 forecasts respectively.
See: Netflix estimates 'Squid Game' will be worth almost US$900 million
This was due to an increase in both paid memberships and average monthly revenue per membership (ARM). Woo highlights that there were 4.4 million paid net membership additions, a 99% y-o-y increase compared to 3Q2020, almost 1 million more than the company’s projection of 3.5 million.
Most of the net additions came from the EMEA and APAC region, and the uptick in membership growth was due mainly to big hits like “Squid Game” and “Money Heist”, which brought in record viewership numbers.
Furthermore, the increasing membership base and price boosted 3Q2021 revenue to US$7.5 billion, a 16.3% y-o-y growth. ARM ended 3Q21 at US$11.80, representing an 8% growth YTD, primarily due to price increases in the Latin America region.
Separately, there have been “strategic acquisitions by Netflix to boost content creation. Woo writes, “we believe that selective acquisitions in the Roald Dahl Story Company and Night School Studio – video game developer, will boost its IP library for future content, as well as to improve its gaming capabilities to ramp up production of mobile video games.”
In terms of revenue, Woo notes that 4QFY2021 is seasonally the strongest quarter of the year, with strong growth in paid memberships and ARM.
“4Q21 should be no different, especially with this season's scheduled introduction of new quality content, and price hikes. We expect to see a relatively large content slate arriving in 4Q21, after lighter 1Q and 2Q content slates due to Covid related production rollovers in FY20.”
Revenue is expected to be strong for 4Q21 at US$7.7 billion, but Netflix has softer q-o-q guidance for earnings per share and PATMI in 4QFY2021. PATMI is guided to stand at US$365 million, 75% lower q-o-q. Woo says this is led by a sharp increase in content costs due to a packed content release schedule, and EPS is expected to be US$0.80 for the quarter.
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4Q EPS and PATMI is typically weaker than the rest of the year, due to higher content costs associated with higher volume of content releases, Woo says.
Shares of Netflix closed at US$664.78 on Oct 22, up US$11.62 or 1.78% compared to its previous close.