Company / Analytics

Analytics, 21 January 2022

What Netflix Earnings Report say about Streaming

Shares of Netflix are falling after Friday after the video-streaming company’s fourth-quarter earnings showed slowing subscriber growth and operating profit margin pressure. As of Friday morning, shares had fallen more than 20% and were trading below $400. Netflix cited increased competition and the strong U.S. dollar among the reasons for its disappointing report.

But analysts believe Netflix report speaks to the broader streaming industry – they indicate that there may be little growth left in the streaming industry. Netflix added 8.28 million global paid net subscribers in the last quarter of 2021, beating the 8.13 forecasted by analysts, according to Bloomberg data. But its outlook wasn’t too inspiring. The company expects to add 2.5 million subscribers in the first quarter, compared to 3.98 million during the first quarter last year.

Thus, while shares may have dropped, investors need to think it twice before ‘buying the dip, ’ as the streaming industry becomes saturated with new competitors such as Disney which offers more than just streaming while other companies like HBO and Amazon Prime are increasingly enhancing their offering. Interestingly, Netflix’s competition also includes ‘sleep” or just anything else users are doing with their time out of Netflix.

Analysts including Morgan Stanley, KeyBank, and Barclays all downgraded Netflix shares on Friday. Still, the company has potential, and most analysts recommend a buy, though they have cut their price expectations.

Netflix Earnings & Outlook

Netflix shares are down 20% in premarket trading Friday after the company quietly admitted in its fourth-quarter earnings that streaming competition is eating into its growth. If it remains down more than 20% until close it will be Netflix’s worst day since Oct. 16, 2014, when shares fell 19.3%.

Netflix’s revenue rose 16% to $7.71 billion in the quarter, in line with analysts’ projections. The company’s quarterly earnings were $607.4 million, or $1.33 a share, compared with a profit of $542.2 million, or $1.19 a share, a year earlier. Analysts were targeting 83 cents a share. The operating margin for the quarter was 8.2%, down from 14.4% a year earlier—a drop the company attributed to its expensive programming lineup for the previous three months. Netflix said it would be cash-flow positive for the full year of 2022.

Despite beating analyst expectations on the top and bottom line and in user numbers for the quarter, the admission seemed to rock investors. Netflix executives have infamously pointed to things like sleep as potential competitors, claiming anything else users could be doing with their time is competition. But even as the streaming wars heated up with Disney and even CNBC owner NBCUniversal entering the mix, Netflix leaders mostly maintained resolved about the new competition.

Netflix’s subscribers miss came despite a strong content lineup of movies and TV shows in the quarter including new seasons of “The Witcher” and “You.” New movies that performed well included the political satire “Don’t Look Up,” which recently broke the company’s record for weekly viewership.

While Netflix has always spent heavily on content, growing streaming competition is driving the company to flood the market with new shows and movies. At the same time, Netflix is cancelling shows faster than it used to. New programs have a shorter window to prove themselves than in previous years, producers who work with Netflix said.

In its letter to shareholders, Netflix said its subscriber growth rates have “not yet reaccelerated to pre-Covid levels.” The company said among the reasons for that is an “ongoing Covid overhang” and economic difficulties in several parts of the world including Latin America.

Netflix Price Increase

Last week, Netflix increased the price for its monthly plans in the U.S. and Canada, the first such boost from the streaming platform since 2020. Netflix isn’t raising prices across the globe. It cut prices in India last month where it has struggled against strong competition in a market it sees as crucial for growth. The company cited programming expenses as the primary reason for the price increase.

What is the company’s outlook?

Many analysts expect much of Netflix’s growth in the coming year to come from international viewers. Not least because a large chunk of the new subscribers was in Europe, the Middle East and Africa, which added 3.5 million subscribers. In the U.S. and Canada, Netflix added 1.2 million, up slightly from the same period a year ago.

To attract new audiences, Netflix is expected to spend more creating content in those markets. International growth will increase pressure for the company to develop more and more localized content, with content costs continuing to rise in lockstep with subscriber growth.

In the U.S., Netflix’s subscriber growth has slowed in recent years, which Mr. Hastings said was frustrating. He said getting two-thirds of the U.S. pay-TV audience to sign up for Netflix was less challenging than getting the remaining third to do so.

Should I buy Netflix stock?

The current consensus among 47 polled investment analysts is to buy stock in Netflix Inc. Meanwhile, the 39 analysts offering 12-month price forecasts for Netflix Inc have a median target of 605.00, with a high estimate of 800.00 and a low estimate of 342.00. The median estimate represents a +51.91% increase from the last price of 398.26, according to CNN Business.

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