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Streaming giant Netflix reported worse than expected second quarter earnings missing analyst expectations on earnings per share but beating on revenue. $NFLX fell more than 12% after hours on weak subscriber growth guidance for the third quarter.

Netflix Tiger King

Tiger King Broke Records During The Covid Lockdown

$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 Thursday

$1.59 Missed $1.81 EPS AND $10.09B Billion Beat $8.26 Billion Revenue Forecast

Earnings

Netflix reported its second quarter 2020 earnings after the bell on Thursday. Thus was the first full quarter to reflect the impact of the coronavirus pandemic.

Earnings per share (EPS): $1.59 vs. $1.81 expected, according to Refinitiv survey of analysts Revenue was: $6.15 billion vs. $6.08 billion, according to Refinitiv Global paid net subscriber additions: 10.09 million vs. 8.26 million expected, according to FactSet

The company also announced that Netflix Chief Content Officer Ted Sarandos will become co-CEO alongside current CEO Reed Hastings. He will also join the Board of Directors. Netflix missed analyst expectations on earnings per share but beat revenue expectations.

Netflix Inc NASDAQ: NFLX

Market Reaction After hours $471.64 −55.75 (-10.57%)

Highlights

Executives explained the slowdown in their letter to shareholders, saying,

“Growth is slowing as consumers get through the initial shock of Covid and social restrictions. Our paid net additions for the month of June also included the subscriptions we cancelled for the small percentage of members who had not used the service recently.”

Netflix Q2 2020 subsriber growth

Outllook

Netflix provided third quarter revenue guidance of $6.33 billion, below analyst estimates of $6.40 billion, according to Refinitiv. It expects Q3 EPS of $2.09 versus analyst estimates of $2.01.

Netflix’s guidance for subscriber net adds fell far below analyst expectations. The company expects 2.5 million net subscriber additions for Q3, while analysts were expecting 5.27 million.

Competitors Heating Up

Netflix now counts TikTok among its rivals.

“TikTok’s growth is astounding, showing the fluidity of internet entertainment,” the company wrote to shareholders. “Instead of worrying about all these competitors, we continue to stick to our strategy of trying to improve our service and content every quarter faster than our peers. Our continued strong growth is a testament to this approach and the size of the entertainment market.”

Walt Disney rolled out its much-awaited streaming service Disney+ last year, 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

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