Proactive Investors - US media companies will face ongoing challenges in the second half of 2023, analysts at UBS believe.
Most of the major streaming companies are seeing sustained pressures on traditional television, sluggish growth in direct-to-consumer (DTC) subscriptions, and rising costs for sports broadcasting rights, which are driving declines in TV earnings before interest, taxes, depreciation, and amortization (EBITDA) across the board.
Netflix Inc (NASDAQ:NFLX) is the only company that seems to be well-positioned to keep attracting subscribers in the face of these challenges, according to UBS.
DTC subscriber growth in the United States has hit a significant slowdown, leading studios to take measures such as reducing content budgets, announcing price increases, and intensifying their focus on profitability. The critical question now is whether these platforms can continue to attract subscribers in the face of these challenges.
As UBS analysts noted, media companies that rely solely on price hikes and cost-cutting won't be sufficient for sustaining EBITDA growth, potentially putting these platforms at risk of becoming unprofitable, stagnant businesses.
“The big question is whether these platforms can still grow subs against this backdrop because price increases and cost cutting alone won't sustain EBITDA growth and platforms risk becoming profitless, no growth businesses,” UBS analysts wrote.
“At this point, only Netflix appears to have cracked the code and we see the company as the clear beneficiary of streaming right-sizing as the competitive wave appears to have crested.”
The industry wide pullback in content spend is a positive for DTC leader Netflix, according to UBS, which expects to see accelerating growth for the streamer into 2024.
Netflix has a greater degree of pricing power than peers, UBS noted.
UBS has a Buy rating on Netflix stock and a US$416 12-month price target.
Shares of Netflix were up 3.3% on Tuesday afternoon at US$431.78.