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Competition Keeps Increasing for Netflix

Posted on Tuesday, Oct 27th 2020

Earlier this week, Netflix (Nasdaq: NFLX) reported a mixed third quarter. Not only did the company stumble on its earnings performance, but its subscriber growth for the quarter was also slower than what Netflix had forecast a quarter ago. Its stock tumbled 5% in reaction to the disappointing performance and outlook.

Netflix’s Financials

Netflix’s Q3 revenues grew 23% over the year to $6.44 billion, ahead of the Street’s forecast of $6.396 billion. It ended the quarter with earnings of $1.74 per share, which missed the analyst estimates of $2.13.

Netflix added 2.2 million paid users for the quarter. The company had originally forecast an addition of 2.5 million subscribers for the quarter. It ended the quarter with 195.15 million paid subscribers globally, growing 23% over the year, but missed the management’s expectation of 195.45 million paid subscribers.

For the current quarter, Netflix forecast earnings of $1.35 per share on revenue of $6.57 billion. The market was forecasting revenues of $6.58 billion for the quarter with an EPS of $1.02. Netflix expects to add 6 million global subscribers by the end of the current quarter compared with the market’s forecast of 6.5 million subscriber addition. A year ago, Netflix had added 8.8 million subscribers.

Netflix’s India Growth

APAC region was Netflix’s largest contributor to the paid membership growth for the quarter. The region’s paid subscriber base grew 66% over the year. Netlfix continues to push its presence in the region by focusing on India. During the quarter, it announced a partnership with Reliance Jio, India’s largest mobile operator, to launch a bundle with its mobile and fiber broadband plans. It plans to integrate Netflix with two of Jio’s set-top boxes as part of the agreement.

Additionally, it has also partnered with financial institutions in India to ensure that payment processing becomes easier and seamless in the country. Last quarter, Netlix also released local language support in the country and its interface is now available in Hindi in India.  

Netflix’s Content Plan

Despite the global lockdown, Netflix has restarted production on titles like Stranger Things, Red Notice, and The Witcher. It has completed principal photography on more than 50 productions and plans to complete shooting on 150 additional productions by the end of the year.

Netflix continued to add local language content to the library. It has released Mexican telenovela Oscuro Deseo (Dark Desire) along with several Korean dramas and anime. Oscuro Deseo was its biggest local language release for the quarter. The Korean dramas are doing well throughout APAC and beyond, and its non-fiction series Indian Matchmaking has also attracted millions of viewers outside of India within four weeks of its release.

Besides TV series, original film content continues to be an area of opportunity and it had several big hits in the quarter. Action thriller The Old Guard was its most popular title of the quarter that recorded over 78 million member household views in the first four weeks. Other movies that received strong following include The Kissing Booth 2, Project Power and Enola Holmes.

In spite of the growing content, Netflix continues to face stiff competition. Last quarter saw the release of Comcast’s Peacock and HBO’s Max. Additionally, rivals like Apple TV+ and Disney + continue to add streaming content for its viewers. Netflix will have to continue to bolster its content to stay ahead of these rivals.

Its stock is trading at $485.43 with a market capitalization of $215.3 billion. It had climbed to a 52-week high of $575.37 in July. The stock had fallen to a 52-week low of $270.18 in October last year.

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