Netflix (NFLX 0.91%) said that the latest season of Stranger Things surpassed a significant milestone, attracting more than 1.1 billion hours of viewership.
It's yet more evidence of Netflix's capability to develop programming that consumers desire. This comes as the company grapples with losing subscribers amid rising competition and decreasing consumer demand for in-home entertainment.
NASDAQ: NFLX
Key Data Points
Stranger Things, the eyeball magnet
Interestingly, Stranger Things became only the second Netflix show to surpass 1 billion viewing hours. The other, Squid Game, was a popular Korean-language thriller that generated widespread word of mouth. Viewership figures like this are a good sign for Netflix's subscriber retention. As long as it keeps producing hits like these, folks will be willing to pay the monthly subscription fee for the service. Indeed, the show was so popular that it briefly crashed the Netflix app as viewers flocked to watch.
However, it remains to be seen if the hit series helped attract new subscribers to the service. The company shed 200,000 subscribers in its first quarter, which ended on March 31, its first such loss in over 10 years. Management has projected to lose 2 million more in the second quarter, but that was before it knew that Stranger Things would attract over 1 billion hours of viewership. There is a real possibility that the hype from the series drew new subscribers.
That would do wonders for Netflix, which has seen its stock price decline by 73% off its highs. The company thrived when billions of folks spent more time at home in the early days of the pandemic. Now that away-from-home experiences are more in demand, folks are spending less time at home streaming content. As a result, Netflix announced two rounds of job cuts to maintain profit margins as revenue growth slows. The company is also planning an ad-supported tier to attract cost-conscious customers who have hesitated to subscribe.
Ultimately, viewers pay for streaming services for the content. The popularity of Stranger Things is further evidence of Netflix's ability to create content consumers love. That capability is what will drive shareholder returns in the long run. If a streaming provider cannot continue refreshing the service with new and exciting content, it will lose subscribers to the service that can.
What this could mean for Netflix investors
Netflix is relatively new to the game of creating content. It has a less proven capability than rivals such as Walt Disney (DIS 0.68%), which has delivered hits for several decades. That lack of proven experience is a handicap to the stock price as investors consider Netflix riskier. The fact that Stranger Things notched over 1 billion viewing hours is another notch on its belt that will help reduce its riskiness in investors' minds.
It might also be an excellent time for potential investors to add Netflix stock to their portfolios. The results from Stranger Things have yet to be reflected in the company's financial statements. It reports second-quarter earnings on July 19. Investors considering adding shares of Netflix might want to do so before that date, when management will reveal the impacts on revenue and subscriber growth that the hit series is having.
