Netflix (NFLX) is scheduled to report results of its fourth fiscal quarter after market close on Tuesday, January 19. A video interview with Netflix executives, including co-CEO Reed Hastings and co-CEO & Chief Content Officer Ted Sarandos, will follow at 6:00 pm ET.
What to watch:
1. SUBSCRIBERS: Netflix's subscriber figures are a closely-watched measure of the company's growth trajectory, but one that has certainly been super-charged by the COVID-19 pandemic.
Consensus forecasts currently call for 6.1M paid subscriber additions, $6.63B in revenue and $1.39 in earnings per share for the December-end quarter.
In the fiscal third quarter, the company reported that, "as expected," growth slowed with 2.2M paid net additions versus 6.8M in Q3 of 2019.
"We think this is primarily due to our record first half results and the pull-forward effect we described in our April and July letters. In the first nine months of 2020, we added 28.1M paid memberships, which exceeds the 27.8M that we added for all of 2019...Retention remains healthy and engagement per member household was up solidly year over year in Q3'20," the company stated in its last quarterly letter to investors.
For Q4, Netflix has forecast 6M paid net adds, versus 8.8M in the prior year quarter.
"As we have highlighted in our recent investor letters, we believe our record first half paid net additions would result in slower growth in the back half of this year. If we achieve our forecast, it will put us at a record 34M paid net adds for 2020, well above our prior annual high of 28.6M in 2018," Netflix has said.
In a recent preview note to investors, Morgan Stanley analyst Benjamin Swinburne said the "journey from a net additions driven stock" to one driven by earnings and free cash flow will continue. After accelerated streaming additions in 2020, Netflix is "reinforced with unparalleled global scale and an even stronger competitive advantage," argues Swinburne. He believes Netflix's path to sustainable positive free cash flow generation is "becoming increasingly clear" as recent price increases and subscriber gains roll through financials this year, added Swinburne, who keeps an Overweight rating and $650 price target on the stock. He forecasts 6M paid net adds in Q4, in line with the company's guidance.
2. COMPETITION: In the company's last quarterly letter, the company said: "This past quarter, we saw the debut of Comcast’s Peacock, which comes on the heels of the launch of HBO Max and Disney+. Disney’s recent management reorganization signals that it is embracing the shift to streaming entertainment. We’re thrilled to be competing with Disney and a growing number of other players to entertain people; both consumers and content creators will benefit from our mutual desire to bring the best stories to audiences all over the world. We’ll continue to focus on pleasing our members and improving our service as quickly as possible so that we can be everyone's first choice for online entertainment."
More recently, on January 12, Netflix unveiled it 2021 film line-up, promising "a new movie every week featuring the biggest stars."
After the 2021 film preview, KeyBanc analyst Justin Patterson said Netflix's 2021 slate "marks a more pronounced shift toward quality," as its 70 films have increased star power from the likes of Dwayne "The Rock" Johnson, Leonardo DiCaprio, Meryl Streep and Denzel Washington. The analyst believe Netflix's scale has made direct-to-streaming a more compelling distribution option for actors and directors, particularly as COVID-19 weighs on global box office revenue. If Netflix can succeed in film, its lifetime subscriber value can increase due to improved retention and pricing power, predicts Patterson. The analyst has an Overweight rating on the shares.
3. PRICING: On October 29, Netflix raised prices for the two higher tiers of services it offers to U.S. customers. The Basic plan now costs $8.99 in the U.S., the Standard plan costs $13.99 and the Premium plan costs $17.99. According to a report from The Verge, the new pricing for the standard plan represented a $1 per month increase, while the new premium cost reflected a $2 per month increase from prior rates.
The next day, Jefferies analyst Alex Giaimo said a U.S. price hike announcement came "a bit earlier" than he had expected from Netflix, but he does not view it as surprising given recent international price increases and the company's typical two year cadence. The analyst said in a note titled "Well Worth an Extra $1" that he believes the near-term content slate from Netflix is underrated and considerably stronger than network peers. Giaimo reiterated a Buy rating on Netflix shares.
On January 13, Bernstein analyst Todd Juenger said that Netflix's "general approach to pricing in its recent era is hiding obviously in plain sight," describing that approach as a plan to raise prices in most markets roughly every two years, and raise price aggressively on the Premium plan, moderately on the Standard plan, and rarely on the Basic plan. After very little pricing activity in 2020, the analyst believes "evidence is growing that we will see widespread pricing increases in 2021." In the quarter, two significant price hikes took place, he pointed out, namely the previously announced increases in U.S. and Canada, as well as an increase in Ireland. Juenger believes Austria and Ireland seem to be serving as "trial markets" and leading indicators of future broader increases across Europe, the analyst added.
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