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Cloud Stocks: Netflix Price Hike Ruffles Competition

Posted on Friday, Jan 25th 2019

According to an eMarketer report, Netflix (Nasdaq: NFLX) accounted for nearly 86.7% of the US subscription Over-the-Top (OTT) video users in 2018. In 2019, the US OTT viewership is estimated to grow 2.5% to 205 million people with Netflix expected to retain market leadership. But there are several players in the market wanting to challenge its dominance. The competition in the market is surely heating up.

Netflix’s Financials

Netflix’s Q4 revenues grew 28% over the year to $4.19 billion, missing the Street’s forecast of $4.21 billion. Adjusted EPS of $0.30 was better than the market’s forecast of $0.24 for the quarter.

During the quarter, Netflix added 1.53 million domestic subscribers, ahead of the 1.5 million expected by the market. It also outpaced market expectation in the international markets, adding 7.31 million new subscribers in the quarter, compared with the 6.1 million expected. It ended the quarter with 139.3 million global subscribers. The US streaming customers brought in $2 billion revenues in the quarter and international streaming customers added $2.1 billion for the quarter.

Netflix ended the year with revenues growing 35% to $15.8 billion with an EPS of $2.78. Net income grew to $1.2 million from $0.56 million a year ago.

For the current quarter, Netflix expects revenues of $4.49 billion with an EPS of $0.56. The market was looking for revenues of $4.61 billion with an EPS of $0.82.

Netflix’s Content and Price Wars

Netflix has steadily been investing in content to drive user addition. During the recent quarter, it added several blockbuster hits such as You, Bird Box, and the UK series Bodyguard that helped draw viewers. It has been pushing into the family and children’s content segment and announced plans to roll out the animated series based on Roald Dahl’s books including titles like Charlie and the Chocolate Factory, The BFG, Matilda, and The Twits. It is also experimenting with an interactive format and recently launched Black Mirror: Bandersnatch that allows users to choose from multiple options as to how they wanted the story to progress. It continued to gain recognition for its content and received several Oscar nominations for its home production Roma.

It is also investing in international content for its fast growing markets like India, Mexico, Spain, Italy, Germany, Brazil, France, Turkey, and the Middle East. It released several foreign language original content such as the Spanish Elite, Italian series Baby, and the Turkish series Protector. In France, the company is looking to release 14 local shows by fall this year.

All this content comes at a price. It accounted for nearly $7.5 billion in content costs in 2018. Due to these costs, Netflix ended the recent quarter with a free cash flow of negative $1.3 billion. It expects its cash burn to continue to the next year. During the current year, it reported a total cash burn of $3 billion. Netflix is hopeful that its free cash flow will improve in the next year.

Netflix hopes to address the cash flow issue by hiking its prices, yet again. It is proposing a hike of 13-18% to apply to all its users over the next few months. A few years ago, both the investors and the consumers were averse to Netflix’s price rise. But the conditions appear to have changed now. The more recent Netflix price hike did not see as much of a subscriber churn.

Additionally, Netflix is changing gears on some of its other strategies. For instance, it is reducing the focus on the one-month free subscription for new members to grow revenues. It is also looking at experimenting with lower pricing tiers to attract more customers in international markets.

But within the US, Netflix’s competition is seeing the price hike as an interesting opportunity. Soon after its price hike announcement, Hulu announced plans to cut the monthly price of its cheapest, ad-supported streaming service, by $2 to $5.99 next month. Hulu is not touching its ad-free subscription price, but that service is already priced lower than Netflix. Currently, Hulu charges $11.99 per month for its ad-free streaming version that is already a dollar cheaper than Netflix’s subscription. Hulu did announce a $5 price hike for its most expensive plan to $44.99 per month. This plan includes the live TV option.

Hulu is still a much smaller competitor for Netflix. It ended the last fiscal with more than 25 million subscribers in the United States and does not have an international presence. It hopes its price changes will help it add more subscribers soon.

As subscribers to a digital streaming service, I would like to know from you as to what is more important – price or content?

Its stock is trading at $326.67 with a market capitalization of $142.46 billion. It has fallen from the 52-week high of $423.21 that it was trading at in July last year. Last month’s stock market volatility had hurt Netflix as well. It had crashed to a 52-week low of $231.23, but has clearly recovered since.

Photo by on Unsplash

This segment is a part in the series : Cloud Stocks

. Smartsheet Acquiring Bootstrapped Startups to Drive Growth
. Bootstrapped Unicorn Atlassian is Acquiring Capital Efficient Startups
. Netflix Price Hike Ruffles Competition
. How Will Carbon Black Differentiate?
. ServiceNow Grows Through Addition of Capital-Efficient Startups
. Zendesk and Freshworks Follow Different Acquisition Strategies
. Tableau Grows Through Small Acquisitions
. Open Platform Strategy Stands Intuit in Good Stead
. SaaS Companies NEED PaaS Strategy
. Will GoDaddy Follow the PaaS Route?
. Calling ALL PaaS Leaders
. Adobe Delivers Via PaaS
. A Look at Oracle’s 2018 M&A Activity
. What Apps Will Drive More Traction for Cloudera?
. Slack's App Focus Will Be Key to Post-IPO Success
. IBM Counts on its Cloud and Platform for the Turnaround
. Atlassian Acquires From its PaaS Marketplace
. What Should SAP Acquire to Triple its Value by 2023?
. Expect ServiceNow to Acquire From App Marketplace
. Should Follow a PaaS Strategy?
. Six Cloud Stock Picks Based on PaaS Prospects
. How Upwork Can Leverage the Virtual Company Trend
. Qualys Scouting For Acquisitions
. Should SAP Acquire Zendesk or Freshworks?
. HubSpot Counts on its API Strategy
. SurveyMonkey Eyes Acquisitions for Growth
. Workday Wants to Disrupt Cloud Computing Using Machine Learning
. Einstein and Open-Source Platform Lead the Charge for Salesforce
. DocuSign Prepares to Beat Rival Adobe
. Veeva Soars, But Dassault Acquires Medidata for $5.8 Billion
. Tableau Acquisition Signals Massive Analytics Push for Salesforce
. Oracle Joins Hands with Microsoft to Take on Amazon
. GoDaddy is Making Strategic Acquisitions for the Next Level of Growth
. Alteryx Sees Strong Momentum
. Adobe Leveraging Magento and Marketo to Deliver Blockbuster Performance
. Is Slack Overvalued?
. How Will Cloudera Address the Competition?
. Zoom is Not Bothered by Cisco or Microsoft
. Domo Counts on Enterprise Revenue for Growth
. Netflix Plays with Pricing and Games to Attract Subscribers
. CrowdStrike Has a Successful IPO
. Atlassian Crosses the Billion Dollar Revenue Milestone
. ServiceNow Believes Strength Lies in Tie-ups
. Partnerships are the Mantra for BlackLine
. SurveyMonkey Counts on Enterprise Segment for Growth
. HubSpot Soars to a New High
. Intuit Pushes AI to Simplify Tax Filing
. Splunk Sees Strong Cloud Momentum
. Forescout Partners with Big Names
. Smartsheet Tapping into the Government Sector
. Salesforce Continues its Shopping Spree
. Palo Alto Networks Targets the IoT Security Market
. DocuSign Focuses on the Mortgage Sector
. Oracle Brags About Autonomous Database
. Blackbaud Acquires YourCause to Grow Addressable Market
. The Market Expects a Lot More from Adobe
. Anaplan Makes its First Acquisition Post IPO
. Activist Investor Drives Market Interest in Box
. MongoDB's Formula for Success
. Coupa Aims for $1B Revenue
. Dropbox on a Rocky Road
. Medallia Banks on Acquisitions
. IBM Banks on AI
. Time For Skepticism with Netflix
. SAP Riding High on the Cloud
. Amazon's Faster Shipping Hurting its Earnings
. ServiceNow CEO Change Signals Focus on Acquisitions
. Will Google Acquire Fitbit?
. HubSpot Focuses on Its Platform
. BlackLine Partners with Google Cloud
. Rapid7’s Focus on Cloud SIEM Pays Off
. Splunk Bets Big on Data Streaming
. Intuit's QBO Scores Big
. VMware Builds Up With Acquisitions
. Palo Alto Targets $5B Revenue by 2022
. Workday Targeting Procure-to-Pay Cycle
. Will Salesforce Acquire DocuSign?
. Okta Targets Enterprise Customers
. MongoDB Eyeing China With Alibaba Partnership
. Twilio Counts on API Upgrades for Growth
. Adobe Revs up its Experience Platform
. Top 20 for 2020
. Anaplan Sees Expanding Use Cases
. Dropbox Gears Up to Regain Lost Valuation
. Forescout Fails to Deliver
. Enterprise Bet Pays Off for SurveyMonkey

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