Netflix’s results were somewhat mixed when the streaming giant released its earnings figures Wednesday afternoon (Oct. 16), the market’s response to them was not. Shares of Netflix were up 10 percent in early after-hours trading.
By the numbers, Netflix earnings per share came in well ahead of forecast at $1.47 as opposed to the $1.04 predicted ahead of the release. Revenue was a miss, but a narrow one, coming in at $5.24 billion as opposed to the $5.25 billion forecast.
Domestic subscriptions, on the other hand, missed a bit more conspicuously — 517,000 new subscribers, instead of the 802,000 expected. That marks the second quarter in a row Netflix has mixed U.S. estimates for new subscribers. Internationally, the picture was a bit stronger: Netflix picked up 6.26 million, more than the 6.05 million forecast.
Netflix has set its prediction for global net adds next quarter at 7.6 million — 1.2 million fewer new users than it added in Q4 2018. In its quarterly letter to stakeholders, Netflix explained the missed new subscriber targets with increased prices for the service in the U.S. price as well as “very small movements in churn” that had a “meaningful impact on paid net adds.” The same letter further noted that increasing competition in the streaming services arena.
And there will be certainly plenty of new entrants. In the next few weeks, both Disney+ and Apple TV+ will be launching — with new offerings from NBC and Time Warner scheduled to debut in mid and early 2020, respectively. The world is now watching how Netflix, the resident 800-lb. gorilla in the space will hold up head to head against so much high profiled and deep-pocketed competition.
In its letter to shareholders, the firm warned the onslaught of streaming competitors would likely be “noisy” and it could generate “modest headwinds” in the near term.
“Many are focused on the ‘streaming wars,’ but we’ve been competing with streamers (Amazon, YouTube, Hulu) as well as linear TV for over a decade,” the company noted in the letter. “The upcoming arrival of services like Disney+, Apple TV+, HBO Max, and Peacock is increased competition, but we are all small compared to linear TV. While the new competitors have some great titles (especially catalog titles), none have the variety, diversity and quality of new original programming that we are producing around the world.”
It was a sentiment echoed repeatedly by Netflix CEO Reed Hastings in his call with analyst post-release, which, unsurprisingly, featured an awful lot of questions about all the rising competition, noting that ultimately all the new players did not add up to a “big change” to an already competitive landscape.
“We’re not really competing with each other, but with broadcast,” he noted.
He also noted that the firm’s content development strategy would remain the same in that the firm would continue to take “bold swings” when necessary, but that it won’t “chase every deal on the table.”
The company said its multi-billion-dollar content budget and robust subscriber base allow it to pursue a variety of different projects — but that its large stream of diverse international users also require its content offerings remain highly diverse.
“Our ambitious approach reflects our goal to satisfy the entertainment desires of our 158m-plus members and to attract as many of the hundreds of millions of non-members as we can. To accomplish this, we need great breadth of quality content because people have very diverse tastes,” the letter to shareholder noted.
Moreover, that Netflix admits that many of its emerging rivals — most especially Disney, which owns the rights to Star Wars, Marvel, Pixar and seemingly every fairytale princess in the history of the world — bring substantial content resources to the table, Netflix remains confident in its offerings. The company noted that the third season of “Stranger Things” was the most viewed season yet, with 64 million accounts watching it in the first four weeks.
Whether it will all be enough to hold off Disney, Apple and everyone else crowding into the field in a few weeks remains to be seen. Stranger Things was a massive phenomenon.
Then again, of the top 10 top-grossing films of 2019 so far, six were made by Disney. With “Frozen 2” and the new Star Wars aren’t out yet, so it is entirely possible that by the end of the year, Disney will have been behind 8 of the top 10 films of the year. Suffice to say, Disney is also pretty good at putting out content that speaks to a broad and diverse global audience.
This means Netflix may have investors’ confidence behind them today — but has much work cut out for it coming up. Or, as Hastings said last month (though as of Wednesday’s call with analysts, he insisted he was only kidding): “It’s a whole new world.”