After canceling its third original show in a month, most investors are now convinced that the company has changed and updated its gauge for show success. Netflix (NASDAQ:NFLX) shares are now expected to rally and recovery from a slight decline in the past week.
Low Viewership
This is due to the company changing its way of evaluating the success of its shows. Netflix is now considering the number of viewers for each show from previously basing their ratings on collective viewer reception and reviews. This means that the company would now be making show cuts and renewals based on the number of viewers, not on good reviews alone.
Netflix has announced this month that it has canceled The Get Down after one season, Sense8 after two seasons, and Girlboss after just one season. The following shows were canceled without an official statement or explanation from Netflix as to why they were discontinued.
However, actors and a number of tv producers have hinted that the most probable reason for the cancellation was due to the low viewership to which the production costs would not have been able to level out.
Netflix’s chief content officer Ted Sarandos spoke earlier this week about the recently canceled shows. “A big expensive show for a huge audience is great. A big, expensive show for a tiny audience is hard even in our model to make that work very long.” he stated.
More Content Cuts
After the announcement of Sense8’s cancellation, Netflix CEO Reed Hastings announced that the company’s hit ratio is currently way too high and he believes that the company has not yet been able to cancel enough shows. "I'm always pushing the content team; we have to take more risk, you have to try more crazy things, because we should have a higher cancel rate overall." said Hastings during the Code Conference in California.
Analysts have previously commented on the company’s vulnerability in the way they have continuously provided seemingly huge budgets for shows which were unheard of.
The company is already spending around $6 billion in content production, which is one of the highest numbers compared to its competitors. The company’s original shows have already reached 455 by last year and might hit 500 before the year ends.
This is why investors might finally start trading Netflix shares again due to the company’s recent move to start cutting shows based on viewership. The stock has been given a target price of $165 due to the company’s renewed discipline in bringing out original content to their global platform.
Netflix shares are currently trading at $157.50 and has risen by 26% year to date. The stock’s recent growth has been mostly driven by the company’s growth outlook internationally and is expected to recover in the coming weeks as the company makes more cuts to its wide content library.