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Streaming giant Netflix reported better than expected first quarter earnings and subscriber growth after the close Tuesday but lowered forward guidance. $NFLX said it doesn;t see Disney's new service Disney+ with content from Fox Networks, Disney, Pixar, Marvel and Star Wars hurting.

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Netflix Inc NASDAQ: NFLX · Reported After Close Tuesday

$0.76 Beat $0.57 EPS AND $4.52B Beat $4.50 Billion Revenue Forecast

Earnings

Netflix (NFLX) reported Q1 2019 earnings per share of 76 cents higher than the 57 cents expected by Refinitiv/ $NFLX reported $4.52 billion, vs. $4.50 billion expected per Refinitiv consensus estimates. The company also said it doesn’t expect new streaming services from companies like Disney to negatively affect its subscriber growth. Q1 revenue of $4.52 billion was up 22.5% annually. Earnings per share climbed from 64 cents in Q1 2018 to 76 in the same quarter this year, marking an 18.8% increase.

The focus is on Netflix's subscriber figures and guidance is likely to have a bigger impact on how its shares move post-earnings than its revenue and EPS numbers.

  • Domestic paid subscriber additions: 1.74 million, vs. 1.61 million, forecast by FactSet
  • International paid subscriber additions: 7.86 million, vs. 7.31 million, forecast by FactSet

Beginning with its Q4 report, Netflix has stopped providing guidance for free trial subscriber adds.

Competitors Heating Up

Walt Disney rolled out its much-awaited streaming service Disney+ last week, intensifying competition in the streaming arena. Armed with a huge repository of original content, gathered after the recent acquisition of the media assets of 21st Century Fox (FOX), Disney is all set to change the on-demand video streaming landscape.

Amazon (AMZN) Prime Video, AT&T (T) Time Warner, and Hulu have been ramping up their technical infrastructure and content portfolio, targeting a slice of Netflix’s market share.

“Questions have included expected announcements from Apple/Disney (as a possible reflection of future competition), pricing power vs. churn (impact on [long-term] margins vs. [short-term sub dynamics) and what content slate investments might yield against forward growth. Ahead of its earnings report, we think many of these fears are well understood by investors.” UBS analyst Eric Sheridan said. (But Are they?)

Netflix Inc NASDAQ: NFLX

Market Reaction After hours $356.50 −$2.96 (-0.82%)

Guidance

Netflix provided light guidance for the second quarter. The company estimated Q2 earnings per share of 55 cents compared with the 99 cents analysts were expecting, per Refinitiv.

CMO Retiring

Netflix said its Chief Marketing Officer Kelly Bennett will retire this year. Chief Content Officer Ted Sarandos will run both content and marketing in the interim during the search for a new CMO.

Netflix on Competition

Netflix addressed the entrance of new streaming players like Apple and Disney in its letter to shareholders.

“We don’t anticipate that these new entrants will materially affect our growth because the transition from linear to on demand entertainment is so massive and because of the differing nature of our content offerings,” Netflix wrote, comparing the shift from linear viewing to streaming to that from broadcast to cable in the 1980s and 1990s. “We believe there is vast demand for watching great TV and movies and Netflix only satisfies a small portion of that demand.”

 

NFLX Earnings Q1 19

Cash Burn Update

Netflix reported net cash flow for the quarter of negative $380 million compared to negative $287 million during the same period last year. The company said it now expects its 2019 free cash flow deficit to be greater than the negative $3 billion previously expected, coming in at negative $3.5 billion.

Netflix said the larger deficit was due to a change in corporate structure and investments in real estate and infrastructure.

The company previously said cash flow would remain consistent in 2019 compared with last year’s total of negative $3 billion. Netflix said it still expects free cash flow to improve next year and the years after.

The company previously said 2019 will be its peak for cash burn, after which it expects it to fall.

Price Hikes

Netflix addressed its recent price hikes in its letter to shareholders, saying the response in the U.S. “so far is as we expected and is tracking similarly to what we saw in Canada following our Q4′18 increase, where our gross additions were unaffected, and we see some modest short-term churn effect as members consent to the price change.”

Netflix Inc Q4 Earnings Recap

$0.30 Beat $0.25 EPS But $4.19B Missed $4.21 Billion Revenue Forecast

Earnings

Netflix (NFLX)  Q4 earnings were EPS of 30 cents on revenue of $4.19 billion ahead of the FactSet consensus is 25 cents EPS down from 41 cents a year ago. Estimize consensus EPS estimate was 34 cents.The FactSet revenue consensus was $4.21 billion, up from $3.29 billion a year ago, and in line with the company’s guidance of $4.199 billion. Estimize forecasts revenue of $4.23 billion.

Domestic subscriber additions were 1.53 million and International subscriber additions 7.31 million,The FactSet consensus for domestic streaming revenue was $2.00 billion, for international streaming was $2.13 billion and for domestic DVD is $84.6 million. FactSet are expecting, on average, total net subscriber additions of 9.2 million, up from 8.3 million a year ago. In October, the company guided for total net additions to rise to 9.4 million.

Raymond James and UBS Upgrade NFLX Ahead of Earnngs

Raymond James analyst Justin Patterson upgraded Netflix from Outperform to Strong Buy on Friday raising his price target from $435 to $450 Patterson wrote about Netflix that “Given underperformance in 2H18, vs.traditional media (e.g. DIS, CMCS), we believe the combination of positive revisions and emerging signs of long-term profit potential will yield share price outperformance,” Patterson said the success of “Bird Box” is confirmation that Netflix’s movie strategy is working with convenience, lower cost and global distribution to continue to gain market share in coming year.

UBS analyst Eric Sheridan upgraded Netflix from Neutral to Buy raising his price target from $400 to $410. Sheridan wrote “After six months of stock underperformance & key debates emerging about competition, margins & FCF, we think these debates are better understood by investors and reflected in the current stock price”. Sheridan said the potential to increase margins and free cash flow over time is not fully priced into Netflix stock as of yet. Despite increasing competition he says Netflix has been widening its competitive moat and remains on track to be a primary long-term secular streaming winner.

NFLX 2019 Meltup

Netflix closed higher after the news Friday, January 11, 2019.  $NFLX finished the week at $337.59 ▲ 12.93 (+3.98%). The stock is up 26% for 2019 and even more off the low from the Apple earnings sell off low 233.88 on Mon, Dec 24, 2018. Know your risk.

They key is what Netflix did to get here.

  1. What is the ASP or average selling price? ASP price rises and an improving mix of HD and 4K subscription plans are key Domestically gains are expected, the risk is how the strong US dollar impacts international subs.
  2. The cost of content is a huge component in the battle between studios.  With the 2018 content budget released in 2017 revised higher and Netflix having not told us what their content budget for 2019 is, this is a huge what if.
  3. Given the ASP and content questions the cash burn guidance is crucial. 

Last quarter Netflix reported EPS of $0.89 beating analyst estimates of $0.68 on in-line revenues of $4.0 billion adding 6.96 million subscribers globally in the quarter well ahead of consensus estimates of roughly 5.1 million adds.  For the seasonally strong Q4, Netflix guided for 9.4 million subscriber adds, well above a 7.7 million consensus. In the year-earlier quarter, Netflix earned 29 cents a share on sales of $2.98 billion. 

Netflix Inc NASDAQ: NFLX

Market Reaction After hours $340.19 ▼ 13.30 (-3.76%)

Outlook

NFLX guided toward lower-than-expected results for the first quarter of 2019. Netflix expects earnings per share of 56 cents on revenue of $4.49 billion, compared with Wall Street consensus estimates of 82 cents and $4.61 billion. Netflix previously warned content costs are more heavily weighted in the second half of the year.

Newly appointed Chief Financial Officer Spence Neumann said during the company's earnings interview that a move toward owned content has "put pressure on the cash flows of the business and the cash needs of the business over the past few years," but that the company is confident in its investment.

Netflix said it saw blockbuster hits this past quarter with original movies and scripted series like "Bird Box" and U.K.-based "Bodyguard," and rapidly accelerated viewership in unscripted content. In the unscripted content segment, Netflix branded originals account for the majority of viewership, CEO Reed Hastings said in the interview.

"You know for 20 years we've been trying to please our members, and it's really the same focus year after year. We've got all these ways to try to figure out which shows work best, which product features work best," Hastings said. "It's the same virtuous cycle: Improve the service for our members, we grow, that gives us more money to invest."

Netflix reported free cash flow for the quarter of negative $1.3 billion. The company expects its cash burn, which totaled negative $3 billion for the year, to hold consistent in 2019. After that, the company said, free cash flow will improve. 

Netflix added 29 million paid subscribers for the full year of 2018, 33 percent higher than the 22 million paid subscribers it added in 2017. Free trials accounted for 9 million global memberships during the fourth quarter. The service has seen considerable growth in emerging international markets like India and Mexico, exposing the company to certain foreign exchange headwinds. It's also been pushing into family and children's content, and it recently experimented with interactive story formats with "Black Mirror: Bandersnatch."

"There's been a few false starts on interactive storytelling in the last couple decades, and I would tell you that this one has got storytellers salivating about the possibilities," Chief Content Officer Ted Sarandos said in the earnings interview.

"We've got a hunch that it works across all kinds of storytelling." Netflix said it claims 10 percent of television screen time in the U.S. and that it counts non-television offerings like the video game Fortnite among its most serious competitors. 

Netflix is the first FANG company to release December quarter earnings.

Content Library and Costs

Walt Disney Co. $DIS has said it will pull its films off Netflix by 2020 end and launch it's own streaming service in 2019 that will become the exclusive home for Disney, Pixar, Marvel and Star Wars films.


Millarworld 1

Netflix has also made moves on this front with it's First Acquisition With Comic Publisher Millarworld. $NFLX planned to spend $7 billion on content in 2018.

Source: NetFlix, TradersCommunity, AlphaStreet

From The TradersCommunity Research Desk

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