Netflix (NFLX) is scheduled to report results of its fourth fiscal quarter after market close on January 21, 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 third quarter, the company reported total paid net adds of 6.8M subscribers, up 12% year-over-year. In the U.S., paid net adds totaled 500,000 in Q3, with the company stating that "on a member base of more than 60M, very small movements in churn can have a meaningful impact on paid net adds." For Q4, Netflix has forecast global paid net adds of 7.6M, with 600,000 in the U.S. and 7.0M for the international segment, compared to its addition of 8.8M subscribers in the same quarter of last year. The forecast implies full year 2019 paid net adds of 26.7M, down from 28.6M last year, noted the company with its third quarter report. "While we had previously expected 2019 paid net adds to be up year over year, our current forecast reflects several factors including less precision in our ability to forecast the impact of our Q4 content slate, which consists of several new big IP launches (as opposed to returning seasons), the minor elevated churn in response to some price changes, and new forthcoming competition," Netflix stated along with its last earnings report.
2. DISNEY+, PEACOCK: On January 14, SensorTower's Store Intelligence Data Digest reported that Disney+ (DIS) saw more than 30M downloads in the U.S. during the fourth quarter, grossed more than $50M in its first 30 days and earned more revenue in the U.S. than HBO NOW's (T) best month. Disney+ was the number 9 app by worldwide downloads in the fourth quarter, despite launching well into the quarter on November 12, the publication stated earlier this month. Disney+ was also able to reach 71% of Netflix's revenue peak this December, the report added.
This morning, Disney announced that it has set March 24 as the new launch date for Disney+ in the UK, Ireland, France, Germany, Italy, Spain, Austria, and Switzerland. Additional Western Europe markets, including Belgium, the Nordics, and Portugal, will follow in summer 2020, the company stated.
On January 16, Comcast (CMCSA) unveiled Peacock, its upcoming ad-supported streaming service with subscription tiers. Following the event, JPMorgan analyst Philip Cusick said he was impressed with NBC's Peacock presentation, particularly around content strategy, advertising monetization, rollout strategy, and long-term revenue forecasts. The analyst now estimates 32M Peacock monthly active users domestically exiting 2024.
3. ANALYSTS PREVIEW UPSIDE: On January 17, SunTrust analyst Matthew Thornton kept his Buy rating and $402 price target on Netflix, saying its domestic subscriber adds for the quarter should be slightly ahead of guidance while its outlook for Q1 should also see some "modest upside". The analyst believes that the company has scaled the "wall of worry" with the launch of Disney+, but sees another competitive test coming with the launch of Disney+ in Europe along with the launch of Peacock and HBO Max in the U.S.
The same day, UBS analyst Eric Sheridan raised his price target on Netflix to $405 from $370 and kept his Buy rating, saying the risk-reward on the stock is compelling now that the launches from its competition have passed. The analyst states that the company's long-term fundamental view also "screens very well", adding that Netflix is also approaching free cash flow breakeven levels.
JPMorgan analyst Doug Anmuth also remains positive on shares of Netflix into the company's Q4 results, telling investors that he has more confidence in Netflix's net additions given its "strong" Q4 content, which includes The Witcher, The Crown 3, The Irishman, 6 Underground, and You 2, as well as easing churn from price increases. Anmuth now believes Netflix's net adds will increase in 2020 from 2019 and he has increased confidence in the company's multi-year international growth potential. Despite the stock's recent strong performance, investor sentiment "remains quite mixed," Anmuth told investors in a pre-earnings research note.
Piper Sandler analyst Michael Olson said the combination of his firm's "Netflix Navigator" search index and YouTube trailer analysis point to Q4 subscriber addition upside for both Netflix's domestic and international segments. The search index analysis now suggests Q4 domestic subscriber growth of 5.8% year-over-year, above the consensus estimate of 4.8%, and international growth of 31.3% year-over-year, above the consensus at 30%, Olson recently told investors.
4. EINHORN ADDS TO SHORT BET: In its letter to investors for the fourth quarter, sent today, David Einhorn's Greenlight Capital reported that its top short positions include Assured Guaranty (AGO) and Netflix. On Netflix, Greenlight wrote: "We have been negative on NFLX's earnings prospects for a long time, and we used the late 2019 bounce in the shares to make it a more substantial investment." Einhorn's fund went on in the letter: "It appears to us that new subscriptions are slowing and cancellations are accelerating. Competition is denting the NFLX domestic story, just as the platform loses its two most popular shows, Friends (in 2020) and The Office (in 2021), forcing management to spend aggressively to create and market binge-and-forget Netflix Originals and stand-up comedy specials, which lack staying power. In response, management has decided to stop disclosing U.S. margins and subscriber totals beginning in 2020."
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