Netflix Inc reported a dramatic slowdown in new subscribers on Tuesday and largely missed earnings expectations, which sent stocks into after-hours trading
Netflix
NFLX,
-099%
reported 22 million new net subscribers in the third quarter, after two consecutive quarters surpassing the 10 million mark amid COVID-19 pandemic shelter-in-place orders The No. 1 streaming service reported net profit of 790 million, or $ 1 74 per share, compared to net income of $ 1 47 per share in the previous year quarter Income improved to $ 6 44 billion from $ 5 25 billion a year ago Analysts polled by FactSet expected at adjusted profit of $ 2.13 a share on sales of $ 6.39 billion
Netflix warned in July that first-half subscriber gains would likely decelerate in second-half, guiding 25 million new subscribers in third quarter Investors sold off the stock in response, pushing down 65% shares the next day
Netflix forecast 6 million new subscribers in the fourth quarter, which was lower than analysts’ average expectation of 656 million, according to FactSet Shares fell about 5% on Tuesday in after-hours action immediately after the release of the report
« The state of the pandemic and its impact continue to make projections very uncertain, but as the world recovers in 2021, we would expect our growth to return to levels similar to those before COVID, ”company executives said in a letter to shareholders“ In turn, we expect that net paying additions will likely be down year over year in the first half of 2021 compared to the sharp rise in net paid additions that we experienced in the first half of 2020 »
Netflix has largely taken advantage of Americans forced to stay home for months due to the pandemic But as some states relax quarantine restrictions, U of NetflixS subscriber growth is « reaching saturation point, » said the eMarketer analyst Ross Benes “However,” he added, “Netflix has a huge advantage internationally and we expect significant subscriber additions overseas. »
As Europe and possibly US states impose lockdowns during the latest wave of COVID-19 cases, Netflix could benefit from more viewers at home – especially in the midst of Sharp drop in ratings for professional sporting events and continued decline in movie theaters Netflix also faces stiff competition from Apple Inc
AAPL,
131%,
Walt disney co
DIS,
058%,
Comcast Corp
CMCSA,
-013%,
AT&T Inc
T,
-044%,
Amazonecom Inc
AMZN,
030%,
and others who are trying to catch up in streaming
Netflix enjoyed an edge over these new rivals because of the developed pipeline it had for content, which meant it already had plenty of new shows and movies in the box when COVID-19 forced its way stopping the production of new content Executives tried to ease concerns about the pipeline in the second half of the year and through 2021 on Tuesday by revealing that filming had resumed for high-profile content, including the fourth season of « Stranger Things. » « And the second season of » The Witcher « »
“For our 2021 roster, we continue to expect the number of Netflix originals launched on our service to increase year on year every quarter of 2021 and we are confident that we will have an exciting lineup of programs for our customers. members, especially compared to other entertainment service options, ”the executives said in their letter to shareholders
In a video conference call Tuesday night, the company’s co-CEO Ted Sarandos said Netflix is on track to complete 150 productions around the world by the end of the year
“Content is king in the media world and Netflix’s new content backlog appears to be slowing, as does Netflix’s attention span and fatigue of home viewers,” said Wendy Johansson, vice -President of the experience at the digital consulting firm Publicis Sapient MarketWatch « With competition from large studio networks with their own streaming services, it won’t be easy to deliver compelling new content without global economies opening up to allow the creation of new content »
The slowdown in production actually helped Netflix’s cash flow as it continued to increase subscription fees without realizing the costs of creating new content. Netflix reported free cash flow of $ 1.1 billion in the third quarter, after losing more than $ 550 million by this indicator in the same quarter a year ago
« For the full year 2020, we expect [free cash flow] to be approximately $ 2 billion, up from our previous expectations of a breakeven to positive, » executives said « This change is mainly due to our higher operating margin expectations for 2020 and the timing of cash expenditure on content. »
“The new cash flow is exciting for us,” CFO Spence Neumann said on the video conference “You can be sure we’ll stay disciplined and maximize long-term shareholder value”
The improvement in the company’s free cash flow « continues to improve significantly, an overlooked long-term positive for the stock, » Jefferies analyst Alex Giaimo said Tuesday Netflix’s $ 1 billion in Q3 is way above street expectations of $ 241 million, he wrote
With subscriptions slowing, analysts have suggested Netflix may raise prices, highlighting recent moves to shore up its finances This month, Netflix stopped offering free trials in the US and raised HD subscription prices in Canada, suggesting it may follow suit in the US
Read more: Is Netflix about to increase prices in the US? Recent actions suggest this could happen
The company made no comment on the potential price hike in the days leading up to its results – COO Greg Peters declined to comment on Tuesday’s video call – but some of its close to 200 million subscribers seem open to the idea, according to a Wall Street firm up
In a survey of 2,500 US consumers in the third quarter, 53% said they would be willing to pay more, up from 48% in the fourth quarter of 2019, Cowen analyst John Blackledge said in a note to October 14 It has an outperformance rating on the stock with a target price of $ 625
Piedmont Lithium stock has risen since Tesla held its battery technology day The company is using the strength of its actions to raise funds to finance its growth
Jon Swartz is a senior reporter for MarketWatch in San Francisco, covering many major tech players including Netflix, Facebook and Google Jon has covered tech for over 20 years and previously worked for Barron’s and USA Today Follow him on Twitter @jswartz
Jeremy Owens is the chief technology editor of MarketWatch and the San Francisco bureau chief You can follow him on Twitter @ jowens510
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Netflix Action
World News – CA – Netflix Subscription Drops As Pandemic Continues, Stock Drops 5%
