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A secret to Netflix's success: Social media

  • New Netflix shows generated 30 percent more mentions on Twitter when compared with new shows on cable television.
  • Jefferies rates Netflix shares hold, setting the 12-month price target at $141, a 6.6 percent downside from Tuesday's close price of $153.08.
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There's a secret to Netflix's success: social media.

The subscription-based video on demand site is more conducive to producing "viral" original content, which could give it a sustainable advantage over traditional networks and other on-demand providers such as Hulu and Amazon Prime Video, said Jefferies analyst John Janedis.

New Netflix original shows generated an average of 30 percent more mentions on Twitter when compared with new shows on network or cable television, he said, recommending investors hold Netflix shares, setting the 12-month price target at $141, a 6.6 percent downside from Tuesday's close price of $153.08.

"Management has tied the outperformance of original programming to periods of higher [subscriber] growth, which continues to be the biggest driver for the stock on a quarterly basis," Janedis wrote in a note on Wednesday. "If NFLX's platform is more conducive to producing 'viral' content, this could be a sustainable advantage over traditional media platforms as well as other digital platforms with less scale."

Twitter activity can gauge the future success or cancellation of original programming, Janedis said. Following the second season launches of "The Get Down" and "Sense 8," two Netflix original series, marked declines in social media activity preceded each show's cancellation.

Netflix releases entire seasons at once, unlike traditional television networks and cable, allowing viewers to binge watch content and help it "go viral" through social media messaging.

Recent hit series "13 Reasons Why" and "Narcos" "resulted in a surge of social media activity that was sustained for several weeks after the shows premiered," wrote Janedis. "Alternatively, 'Westworld' (HBO) and 'Empire' (FOX), two of the most popular shows on TV, generated Twitter mentions that were more evenly spread throughout a season, tied to the live airing of each episode."

Also unlike traditional networks, Netflix is not evaluated on viewership ratings around the launch of content, which may allow new shows a chance to accrue a larger audience. Thus, after a new show premieres, an uptick in social media mentions can "elevate consumers' perception of the content, and can ultimately drive new subscribers to the platform at a lower cost relative to traditional TV network," noted Janedis.

Janedis remains cautious though, as Netflix remains caught in the midst of growing competition for subscribers as Hulu and Amazon continue to invest in their own entertainment platforms.

In a long-awaited announcement, Apple announced earlier this month that Amazon is coming to Apple's TV app and all Apple TVs with Amazon Prime video.

"Our longer term view is unchanged," concluded Janedis. "We continue to believe that emerging competition, elevated programming costs, and cash burn trends are risks that are not fully appreciated in NFLX's valuation."