![]() Thanks to the tailwind of a major price increase, its revenue surged 41% year over year last quarter. This spending may be a good investment, but if Netflix needs to spend ever-increasing sums on marketing to build buzz for its original content, that will cut into its potential for margin expansion. In 2018, the company plans to spend a whopping $2 billion on marketing. However, in both 20, subscriber count rose by 25%. Last year, it increased its marketing spending by 29% year over year, to $1.3 billion. However, Netflix has relied on huge increases in marketing spending to drive its recent subscriber growth. It's already getting harder to bring in new subscribersĪt first glance, Netflix's rapid subscriber growth would seem to indicate that its limited ability to boost revenue per customer is not a big problem. Thus, while Amazon can keep growing quickly just by increasing revenue per customer, Netflix must rely primarily on subscriber growth to increase its revenue. However, it would take more than a decade to double revenue per customer at that rate. Netflix may be able to raise its subscription price by $1 per month every year or two without much customer pushback. Furthermore, there is still a basic option priced at $7.99 per month for more cost-sensitive consumers. Late last year - i.e., seven years later - the price of its standard plan reached $10.99 per month. ![]() ![]() Netflix rolled out its first streaming-only plan in the U.S. But it makes it a lot harder to grow revenue per customer. In keeping with its brand positioning, the company has shied away from bidding for live sports, let alone creating a "skinny bundle" of traditional cable channels.īased on Netflix's rapid subscriber growth, it's clear that this strategy has worked. As management puts it, "Netflix is a focused passion brand" that sticks to commercial-free streaming of movies and TV series for a low monthly fee. Whereas Amazon's brand is built around the idea of offering everything under one roof, Netflix has adopted an extremely narrow mission. As a result, Amazon may still be far from its ceiling in terms of revenue per customer. In fact, virtually everything Amazon does is designed to convince customers to sign up for Prime, use more Amazon services, and buy more products from Amazon. Amazon also gained a substantial footprint of brick-and-mortar locations, which it is using to offer enhanced service to customers. ![]() Amazon's 2017 purchase of Whole Foods gave it instant credibility in the massive grocery market. It also invests a huge amount of money in expanding its fulfillment network, in order to offer better (and faster) service. However, Amazon has one huge advantage over Netflix in this respect: It has far more room to increase revenue per customer.Īmazon is steadily expanding into new product categories and lines of business while improving its existing offerings. ![]() It trades for about 129 times the average 2018 EPS estimate.Ĭlearly, investors expect massive revenue growth and margin expansion for both companies. Netflix stock trades for roughly 124 times the average analyst earnings-per-share estimate for 2018. Limited room for revenue per customer growthĪmong the four high-flying "FANG" stocks, Netflix and (NASDAQ: AMZN) stand out for having particularly high valuations. While the company clearly has lots of room left for growth, it will struggle to make enough money over time to justify its current $155 billion market cap. However, investors may have become too excited about Netflix stock. ![]()
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