Netflix (NFLX) is scheduled to report results of its third fiscal quarter after market close on October 16, with a conference call scheduled for 6:00 pm ET. What to watch:
1. SUBSCRIBERS: Netflix's subscriber numbers are a closely-watched measure of the company's growth trajectory. In the second quarter, the company reported streaming paid membership grew by 2.7M, which was less than the 5.5M in Q2 a year ago and the company's 5.0M forecast. "Our missed forecast was across all regions, but slightly more so in regions with price increases. We don't believe competition was a factor since there wasn't a material change in the competitive landscape during Q2 [...] Rather, we think Q2's content slate drove less growth in paid net adds than we anticipated. Additionally, Q1 was so large for us (9.6m net adds), there may have been more pull-forward effect than we realized. [...] Q3 has started with Stranger Things season 3, and the first two weeks of Q3 are strong," the company noted at that time. For Q3, Netflix has forecast global paid net adds of 7.0M, up vs. 6.1M in Q3'18, with 0.8M in the US and 6.2M internationally.
2. MORE COMPETITION COMING: On October 9, Rosenblatt analyst Bernie McTernan said his estimate for Netflix's (NFLX) Q3 subscriber additions is roughly in-line with guidance but he believes the focus of the company's upcoming earnings report will be on the subscriber guidance for Q4, which he thinks "will be treated with greater than normal skepticism" as it will be coming roughly two weeks prior to the launch of AppleTV+ (AAPL) and 4 weeks ahead of the launch of Disney+ (DIS). He predicts the heightened competition will lead Netflix to miss the consensus subscriber growth forecast for Q4 and he also sees competition putting upward pressure on content spending, McTernan told investors. He lowered his price target on Netflix shares to $265 from $330 and kept a Neutral rating on the stock. The same day, Monness Crespi Hardt analyst Brian White lowered his Q3 revenue and EPS forecasts for Netflix to account for the weakening macro environment. He also lowered his 2019 and 2020 revenue, EPS and subscriber forecasts, citing macro factors as well as incremental data points around "increasingly fierce competition." White kept a Buy rating on Netflix shares but lowered his price target on the stock to $340 from $440 to account for his lowered estimates.
More recently, Morgan Stanley analyst Benjamin Swinburne said the market's view of Netflix "has not been this cautious for some time," but he cited the company's runway for growth, improving subscriber unit economics and "overblown" competition fears as reasons why he maintains an Overweight rating on the stock. However, he acknowledged that third-party mobile app download data lead him to see risk to his Q3 global paid net additions forecast of 7M and he lowered his Q4 global paid net additions forecast to 8.6M from 9.5M. Given his more conservative long-term subscriber and pricing growth view, Swinburne has lowered his EPS outlook for Netflix and cut his price target for the shares to $400 from $450.
Yesterday, AMC Entertainment (AMC) became another competitor for Netflix to worry about, as the movie theater operator announced that the company is extending its business into the home. AMC Stubs members in the U.S. can now rent or buy approximately 2,000 digital movies from Hollywood studios at AMCTheatres.com as well as on the AMC Theaters mobile, connected devices and SmartTV applications.
3. SEINFELD COMING TOO: On September 16, The Los Angeles Times reported that Netflix had struck a deal with Sony Pictures Television (SNE) to acquire the global streaming rights to the sitcom "Seinfeld." Netflix then confirmed in a tweet that "all 180 episodes of the Emmy-Award winning Seinfeld are coming to Netflix - worldwide! - starting in 2021."
4. STRANGER THINGS RETURNING: On September 30, Netflix announced that it has renewed the series "Stranger Things" for a fourth season and signed series creators and showrunners The Duffer Brothers to a multi-year film and series overall deal. "The Duffer Brothers have captivated viewers around the world with Stranger Things and we're thrilled to expand our relationship with them to bring their vivid imaginations to other film and series projects our members will love. We can't wait to see what The Duffer Brothers have in store when they step outside the world of The Upside Down," said Ted Sarandos, Netflix's Chief Content Officer.
Netflix
-2.93 (-1.03%)
Apple
-1.35 (-0.57%)
Disney
+1.61 (+1.24%)
AMC Entertainment
+0.12 (+1.31%)
Symbol now SONY
+0.15 (+0.26%)