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Cloud Stocks: Time For Skepticism with Netflix

Posted on Tuesday, Oct 22nd 2019

Netflix (Nasdaq: NFLX) has had a tumultuous year so far. The stock has lost nearly 20% of its value since the beginning of the year. Increasing competition from rival and upcoming players in the streaming space are raise concerns over Netflix’s ability to keep growing, especially in the domestic market.

Netflix’s Financials

Netflix’s Q3 revenues grew 31% over the year to $5.245 billion, marginally shy of the Street’s forecast of $4.93 billion. EPS was $1.47, ahead of the market’s forecast of $1.04.

However, the market was disappointed with its subscriber addition. During the quarter, it added 6.8 million subscribers, compared with 7 million paid subscribers expected by the analysts. This was the second consecutive quarter that Netflix missed the subscriber addition expectations. At the end of the quarter, the company had 158.33 million paid subscribers globally, growing 21.4% over the year, but falling short of the expected 158.56 million global paid subscribers.

International Streaming revenues grew 40% over the year to $2.76 billion, falling short of the guidance of $2.78 billion. US Streaming revenues grew 25% to $2.41 billion, marginally ahead of the management’s guidance of $2.40 billion. The DVD business revenues fell 19% to $71.9 million.

For the current quarter, Netflix forecasts earnings of $0.51 per share on revenues of $5.44 billion, falling short of the market’s forecast of earnings of $0.84 per share on revenues of $5.52 billion.

Netflix’s Subscriber Concerns

By region, International Streaming subscribers grew 33% to 97.71 million. It added 6.26 million paid members, better than management’s expectation of 6.2 million. The growth in the international markets was driven by the introduction of a low-priced mobile plan in India, cutting prices in South Korea and growing partnerships with other international vendors. Netflix is now available on Sky Italia in Italy, Canal+ in France, KDDI in Japan and Izzi in Mexico. It also expanded its service offering in other languages including Vietnamese, Hungarian and Czech.

Additionally, international content remains a big focus area. Netflix has added more than 100 seasons of local-language shows to its library and plans to add 130 more by the end of next year.

However, it was a different story in the domestic market. In the US streaming segment, paid subscriber base grew 6% over the year to 60.62 million, translating to an addition of 0.5 million paid subscribers, falling short of the expectations of 0.8 million. The miss in the numbers was attributed to the price hike that Netflix had announced in January this year. The price hike did improve the average revenue per user for the US markets, which grew 16.5% over the year.

The US market will continue to be a concern for Netflix. The market is already saturated and continuing to grow will be difficult. But competition from others like Disney and Apple will make it even more so. Earlier this month, Disney was running a special offer allowing customers to sign up for its streaming services for as low as $4.99 a month compared with the regular price of $6.99 a month. Disney’s streaming service launches in November this year and will have content from Disney, Pixar, Marvel, Star Wars, National Geographic, and its Fox partners. Disney is also expected to offer a bundled service to include Hulu and ESPN+.

Apple TV+ is also launching in November with a subscription of $4.99 a month. Recently, cinema chain AMC also announced plans to enter the streaming market. Its streaming service will allow members of its loyalty program to rent or buy films and watch them at home. AMC already has more than 20 million US households that have signed up to its AMC Stubs program. These users will be able to access almost 2,000 films from every major studio as part of this service. Later this year, AMC will also expand this service to include films from IFC Films and RLJE Films.

While Netflix has been dismissive of the growing competition earlier, it appears to be changing its views now. It is now recognizing that growing competition will result in some headwind in the near-term. But it believes that the addition of streaming options will accelerate the shift from linear TV to on-demand consumption of entertainment. While players like Disney have strong content, they don’t have it in as many languages or genres. Netflix will benefit from the diverse content library that it already has.

Over the next two years, Netflix will see content from Disney, Fox, Warner Bros., or NBCUniversal vanish from its site. It will have to continue to rely more on its original content to attract viewership. Netflix spent an estimated $15 billion on creating and licensing content this year and expects to grow that by 20% in 2020.

For now, Netflix remains the largest streaming TV company in the world. In terms of size, Amazon Prime remains its largest competitor with over 100 million users. But Amazon does not declare Prime Video viewership rates. Despite Netflix’s assertions, I am not very bullish on Netflix going forward.

Its stock is trading at $278.05 with a market capitalization of $121.8 billion. It had peaked to a 52-week high of $385.99 in April this year and hit a 52-week low of $231.23 in December last year.

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
. Will GoDaddy Follow the PaaS Route?
. 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?
. 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
. SAP Bets Big on Experience Management
. Twilio Steps up Investment in 2020 to Preserve Growth Momentum
. Zendesk, Freshworks Focus on Marketplaces and Integrations
. Proofpoint Targets Insider Threats Through Acquisition
. RingCentral's Powerful Partner Strategy Would Augment with PaaS
. Qualys Counts on Google and Microsoft for Growth
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. HubSpot Believes in the Importance of PaaS
. BlackLine Remains Focused on SAP Integration
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. GoDaddy is on a Shopping Spree
. Intuit Targets Online User Base Through Acquisition
. Should Palo Alto Networks Acquire ZScaler?
. Why Salesforce Buying Vlocity Proves the Growing Importance of PaaS
. Datadog Performing Well Post Recent IPO
. Workday Should Open Up About its PaaS Success
. Anaplan Focuses on API Connectors for its Platform
. Veeva
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. RealPage Brings AI and SaaS to Real Estate
. Splunk Should Open up About its PaaS Metrics
. Okta Benefiting from App Diversity
. Oracle Sees Growth Momentum
. Xero Focuses on a PaaS Strategy
. DocuSign Resilient to COVID-19
. Smartsheet Looking up to Enterprise Customers for Growth
. Paylocity Delivers Solid Results
. Q2 Holdings Expands TAM with Acquisitions
. New Relic Focuses on PaaS
. AppFolio Leverages AI for Product Enhancement
. Will Adobe Open Up About its PaaS Statistics?
. Change Healthcare Pushes APIs
. Dropbox Needs to Share API Metrics
. Upwork Improves Monetization
. MongoDB has Miles to go
. Nutanix Needs to Define a PaaS Strategy
. Cloudera Focuses on Hybrid Cloud
. Atlassian Gears Up for Growth, Unfazed by Covid-19
. Shopify Helps Merchants Pivot to Online Stores
. ServiceNow Steady in Turbulent Seas
. RingCentral Sees Strong Traction
. Twilio Hits 52-Week High Amidst COVID Crisis
. HubSpot Lowers Outlook Amidst Virus Concerns
. Proofpoint Acquiring Even Amidst Crisis
. BlackLine Looks Solid At The Face of Covid-19
. GoDaddy Continues to Acquire
. Qualys Expands Cloud Offerings to Soar to New Highs
. Zendesk Struggling Amidst the Downturn
. Alteryx Bounces Back Despite Low Outlook
. Palo Alto Networks Continues to Acquire
. Workday Extends its PaaS Strategy
. Splunk Rides High on Cloud Initiatives
. Salesforce Partners with Workday to Address the New Normal
. Veeva Scales New Highs
. Is Smartsheet’s Pullback a Buying Opportunity?
. MongoDB Soars Even in the Crisis
. Okta Reiterates Outlook
. Is Anaplan a Prospect for Oracle, SAP?
. Oracle Relies on Autonomous Offerings
. Adobe Shifts its Focus
. Paycom Confident Under Current Conditions
. DocuSign Soars to Record Highs
. Paylocity Acquires Amid Crisis
. Datadog's Integrations and Upgrades Help it Soar
. AppFolio Improves Offerings for Current Conditions
. SurveyMonkey Should Get Into PaaS
. Model N Soars to a Record High
. Appian Focuses on RPA for Growth
. Slack Beefs up its Portfolio
. Coupa Expands into Treasury Services
. CrowdStrike Soars to Record Highs
. Guidewire Expands Cloud Offerings
. Dropbox Should Focus on PaaS
. Talend Expands Data Offering Through Partners
. IBM Expands Cloud Partners
. One Medical Supports COVID-19 Care Digitally
. Microsoft Rides High on Teams and Gaming
. Investors Say Yes to nCino’s IPO
. Nutanix Focuses on Government and Media Verticals
. SAP Rethinks Qualtrics Acquisition
. Tenable Expands Into Industrial Cyber-Security
. ServiceNow Expands Ties with Zoom
. Cloudera Powers its Data Platform with Partnerships
. Atlassian Continues to Acquire from PaaS Ecosystem
. Shopify Soars to an All-Time High
. The PaaS Landscape
. HubSpot Focuses on the Enterprise Segment
. GoDaddy Restructures During COVID
. Akamai's Security Solutions Thriving
. Blackline Needs a PaaS Strategy
. Twilio - A Successful PaaS Story
. Zendesk Invests in the Future
. Qualys Continues to Acquire Indian Startups
. ZoomInfo Lists Despite COVID-19
. Analysis of Alteryx PaaS Strategy
. Fastly Needs to Diversify from TikTok
. Way to Go, Salesforce
. Intuit Continues to Acquire
. VMware Continues Buying Spree
. Analysis of Five9's PaaS Strategy
. Okta Expands Alliances to Attract Enterprises
. Palo Alto Continues to Acquire
. Analysis of Splunk's PaaS Strategy
. BigCommerce Goes Big with IPO
. Analysis of Workday's PaaS Strategy
. Analysis of Anaplan's PaaS Strategy
. Sees Strong Demand
. Analysis of MongoDB's PaaS Strategy
. Analysis of Wix's Platform Strategy
. New Relic Product Upgrades Deliver Growth
. What Should Proofpoint Acquire?
. Smartsheet Should Follow Atlassian’s Example
. Adobe's Relentless Growth Continues
. SurveyMonkey's PaaS Prospects
. DocuSign Acquires Amid COVID
. Paylocity Counts on Video
. The Unstoppable Veeva
. Magic Software Acquires to Expand in Europe
. What Can Cloud Startups Do To Raise Seed Capital in 2021?
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. Dropbox Adds Security Capabilities
. Domo Growing Steadily
. Nutanix Focuses on the Hybrid Cloud
. IBM Fails to Impress

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