Even though Netflix’s revenue is steadily increasing, its net profit has been decreasing. Netflix’s net profit dropped about 88% in its third-quarter last year. Netflix had suffered a huge amount of decrease in its U.S. profits due to the high expense costs for overseas. According to Bensinger, “it expected overseas markets to report as much as $ 119 million loss.” In addition, Netflix’s earnings per share have been decreasing. This situation analysis will cover the potential causes of company’s problems and summarize the reason for the poor performance.
Internal Analysis One of the reasons Netflix’s net profit had been dropping last year is because the company incurred high expense costs from overseas. Netflix expected the business to experience losses “between $107 million and $119 million” from the overseas business. The expenses were related to the international expansions and payment made for new content deals depending on the country or region. Each country or region has a different price associated with the content deal for the new business. In addition, the older business of Netflix’s DVD-by-mail service is three times as profitable as streaming because streaming has higher costs for content deals. The revenue made from the online streaming seems to be elusive because of the higher cost in content deals that causes the net profit to be shortened. The amount net profit which was expected to be decreased ranged between “a loss of as much as $13 million to a profit of as much as $2 million” for the fourth quarter of last year. A year earlier, the company reported “7.68 million in net income, or 13 cents per share down from $ 62.5 million, or $ 1.16 per share.” (Bensinger)
External Analysis
Moreover, Netflix has many competitors in the market industry that are providing the OTT services at an affordable price for its consumers. Recently, Amazon announced to a new pricing strategy that will be offered to selected viewers to try out the prime service for a $ 7.99 month subscription fee as opposed to annual $ 79 upfront fee. (Online Reporter) This new pricing strategy by Amazon will allow it new users to experience the service at a more affordable price. With these current changes in Amazon means “Netflix is highly unlikely to reach a goal-set by chief Executive Reed Hastings earlier this year- to add as many as 7 million U.S. streaming subscriptions by year end.” (Bensinger) Because Netflix has only be able to add 3.43 million streaming subscribers in the first nine months and it expected to add up to only 2 million new subscriptions in the last quarter.
In addition, beginning of the last year, Comcast had introduced to offer the streaming video service called Streampix to customers “for a monthly charge of $ 4.99 which will simply be added onto their customer’s existing cable bill.” (Lokey) The Streampix allows Comcast users to stay with them instead of using Netflix because Streampix offers the same content as Netflix streaming services. The cost of adding Streampix from Comcast is less than the cost of using Netflix streaming services. Also, the after Comcast had announced its Streampix, Netflix shares went down 10%.
Furthermore, Netflix came in second place for customer satisfaction with 23%, while Apple iTunes was ranked number one in customer satisfaction with “37% respondent saying they were every satisfied.” However, Amazon was right behind Netflix for customer satisfaction with 22% and Hulu coming in last with 20% customers very satisfied with the services. (Online Reporter) This
