Netflix’s Stock Price, Yo-Yos, and The Preppy Handbook

Netflix’s stock price got hammered.

 

On 4/20/22, the stock price declined by 35% (that’s in one day), wiping out more than $50 billion of the market cap. “At least nine Wall Street firms downgraded the stock on the disappointing report.”

Here’s what happened:

 

• The streaming company lost subscribers for the first time in more than 10 years

 

• “In recent months people have been spending less time on digital platforms as vaccines rolled out and mandates eased”

 

• Netflix faces growing competition. At my house, we watch Netflix, HBO, Hulu, Amazon Prime, and a number of other streaming services

 

• The company “estimates that 100 million households are sharing their subscription passwords with family or friends

 

Hey, don’t look at me…

 

In fairness, the Netflix declines impacted other streaming firm stock prices, because increased competition makes it more difficult for everybody.

 

Frankly, I’m surprised, because Netflix has been aggressive about testing customer preferences- and making changes.

 

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How Netflix Learns What Viewers Want

 

Ever notice how the home page on Netflix is always changing- in small ways? The latest feature is displaying the top-viewed shows in ranked order, which gets my attention.

 

How do they make these decisions?

 

Netflix is relentless about using A/B testing (split testing), which is “a way to compare two versions of something to figure out which performs better.”

 

“Netflix’s A/B testing philosophy is about building incrementally, using data to drive decisions, and failing fast.”

 

Here are some examples:

 

• They know that they need to capture your attention in less than 90 seconds, or you’ll move onto something else

 

• Netflix knows that you look at the images first- then read the details about a show

 

• Images with facial expressions draw more clicks, and villains (surprisingly) drive more viewer engagement

 

• Viewers prefer images with three of fewer characters

 

Well, that’s impressive. So why the loss of subscribers?

 

The answer can be explained by yo-yos.

 

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Becoming a Cool Kid

 

Seth Godin tells a story on this Tim Ferriss podcast about being popular in school and yo-yos. You know where this is headed: popular kids bring a yo-yo to school, and suddenly every kid is playing with yo-yos. To prevent anarchy, the principal outlaws yo-yos.

 

Then, a few years later, it happens all over again.

 

In the 70s, Duncan yo-yos starting showing up at my grade school. Two brothers- one in my class, one a year older- was pros at yo-yos. So, of course I got one, too.

 

Now, here’s the key point: during the yo-yo craze, competitors tried to copy yo-yos. I tried the copycats- but the quality wasn’t as good. The string was thinner, and the string would get tangled easily.

 

So, I stuck with my Duncan yo-yo.

 

The competition did not make a better product.

 

Which leads us to the second example: The Preppy Handbook.

 

 

How to Capture a Fashion Trend

 

The Preppy Handbook came out in September of 1980. Amazon describes the book as: “A facetious guide to emulating the look, speech patterns, thinking, and lifestyle of those who attend prep schools and are a part of high society.”

 

This book commented on the preppy fashion style that grew in early 1980s- think Princess Diana and polo shirts. In fact, the style is making a comeback in the 2020s. I was in college from ’81 to ’85, and the preppy look was everywhere. (We had cars then, by the way).

 

So, you won’t be shocked to learn that dozens of imitators went after the preppy clothing market in the 80s. The difference between yo-yos and preppy clothes?

 

Some of the competitors were able to gain market share.

 

Where does that leave Netflix?

 

Every Great Product Gets Copied

 

Netflix may need more than the one-trick streaming pony to survive.

 

Peep Laja, who I highly recommend as a marketing expert, often says that businesses can’t survive by simply having a better product. He works in the B2B SaaS market, a space with massive competition. Eventually, people copy product innovations.

 

Great companies survive by innovating to stay ahead of the copycats, and by focusing on their brand, their story, and the customer’s story.

 

Don’t sit still for long.

 

Food for thought

 

Ken

 

Image: Geek_love13