Earnings Reports

Google Ad

Streaming giant Netflix reported better than expected third quarter earnings and hit record subscriber growth after the close Wednesday. However US paid net adds of 0.5 million missed forecast of 0.8 million. $NFLX shares rose more than 9% on the news.

NFLX Stranger Things 3

Stranger Things 3 Broke Records When it Premiered July 4

$NFLX has said it doesn't see Disney's new service Disney+ with content from Fox Networks, Disney, Pixar, Marvel and Star Wars hurting.

Netflix Inc NASDAQ: NFLX · Reported After Close Wednesday

$1.47 Beat $0.89 EPS AND $5.25B Billion Revenue as Forecast

Earnings

Netflix (NFLX) net income was $665 million, or $1.47 per share, compared to $403 million, or $0.89 per share, in the prior-year quarter. Analysts had forecast EPS of $1.04. Total revenues of $5.25 billion were up 31% from the same period last year and in line with forecasts of $5.25 billion. Excluding currency impacts, revenue growth was 35%.

Netflix Inc NASDAQ: NFLX

Market Reaction After hours $314.50 +28.22 (+9.86%)

Highlights

  • Total paid net adds of 6.8 million increased 12% year-over-year and was an all-time Q3 record.
  • Average streaming paid memberships and ARPU grew 22% and 9% year-over-year, respectively.
  • In the US, paid net adds totaled 0.5 million versus the company’s forecast of 0.8 million.
  • The slower membership growth in the US was mainly due to the price hikes rolled out earlier in the year. However, revenue growth accelerated with a 16.5% year-over-year increase in US ARPU.
  • International paid net additions grew 23% year-over-year to 6.3 million while ARPU rose 10%.
  • The company’s strategy to focus on original content due to the withdrawal of second run content from other studios is paying off. The success of its original content has helped drive member viewing and engagement.
  • Stranger Things Season 3 and the new limited series Unbelievable contributed to this growth.
  • Free cash flow totaled (-)$551 million in the quarter.

Netflix Q3 2019 Earnings

Outllook

  • For the full year of 2019, free cash flow is expected to be approx. (-)$3.5 billion. The rapid growth in the revenue base coupled with operating margin expansion will help the company fund more of its content spending internally.
  • Free cash flow is expected to improve from 2020. For the fourth quarter of 2019, the company expects revenues to grow 30% to $5.4 billion. Net income is expected to be $232 million, or $0.51 per share.
  • Global paid net adds are expected to be 7.6 million, with 0.6 million in the US and 7 million internationally. Streaming ARPU is expected to grow 9%.

Netflix also said that from the fourth quarter of 2019 onwards, the company would report revenue and membership by region. The regional divisions will be Asia Pacific (APAC), Europe, Middle East & Africa (EMEA), Latin America (LATAM), and the US and Canada (UCAN). Listen to on-demand earnings calls and hear how management responds to analysts’ questions

Competitors Heating Up

Walt Disney rolled out its much-awaited streaming service Disney+ last quarter, 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 last quarter (But Are they?)

Netflix on Competition

Netflix acknowledged it will soon lose two of its most-watched shows, “The Office” and “Friends.”

NBCUniversal announced back in June it plans to remove “The Office” from Netflix in 2021 and move it to its own streaming service. Earlier this month, AT&T’s WarnerMedia announced its new streaming service, HBO Max, will include exclusive rights to stream “Friends” when it launches publicly in the spring of 2020. Netflix previously spent $80 million to keep “Friends” just through the end of this year, according to Vulture. Netflix said the loss of these shows is “freeing up budget for more original content.

Last quarter 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.”

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

Live From The Pit

Log in to comment
Discuss this article in the forums (1 replies).