Netflix tells doubters its long-term outlook is ‘big’ and growing
Despite a raft of competitors, and slowing growth in the US, new subscribers to the streaming-video platform in the rest of the world are growing
Los Angeles — Netflix says it’s ready to take on the toughest year in its history in terms of new streaming competition. Investors have their doubts.
Netflix delivered generally upbeat fourth-quarter results after Tuesday’s close, with overseas growth helping offset a slowdown at home, but it expects to add fewer subscribers in the current quarter than Wall Street projected.
The shares tumbled as much as 3.7%, the most since November, in New York trading on Wednesday morning, after trending mostly higher amid volatile trading since the post-close report.
With technology and media giants such as Apple, AT&T, Comcast and Walt Disney all bringing new video platforms online, Netflix is working to keep customers loyal with a flood of shows and movies. The company plans to boost its spending by 20% in 2020, bringing its programming budget to about $12bn on a profit-and-loss basis.
“We view our big, long-term opportunity as big and unchanged,” CEO Reed Hastings said ahead of its fourth-quarter earnings, released late on Tuesday. Despite the muted first-quarter subscriber forecast, Netflix said there’s “ample room for many services to grow”.
Netflix investors have been grappling with whether the company’s days of reliable growth are over. The company added fewer customers in 2019 than it did in 2018, and its increase in the US and Canada decelerated by more than 3-million. When posting the results on Tuesday, Netflix said price hikes and a growing array of options have made it harder to attract customers.
Netflix can point to its global growth in the latest quarter. The company added 8.76-million customers in the period, compared with forecasts of 7.65-million
It’s only going to get tougher. Apple’s TV+ and the Disney+ platform were both launched in the US during November, enticing consumers with lower-cost services, while AT&T’s HBO Max and Comcast’s Peacock are both coming online in the next few months.
All these competitors are likely to slow customer additions and increase the number of existing customers who cancel Netflix.
Against this backdrop, Netflix posted its weakest year of domestic subscriber growth since it first broke out its online service from the company’s traditional DVD-by-mail business in 2011. Netflix is projecting a gain of 7-million paid subscribers worldwide in the first quarter, short of the 7.82-million estimate.
“We are working hard to improve our service to combat these factors,” it said in a letter to shareholders.
Staying the course
However, Netflix argues that its strategy is still sound, and competition shouldn’t cause it to change course. Losing popular shows such as Friends to its new rivals has had no impact on viewership so far. Netflix subscribers are just finding other shows to watch, chief content officer Ted Sarandos said.
As proof, Netflix can point to its global growth in the latest quarter. The company added 8.76-million customers in the period, compared with forecasts of 7.65-million. Hastings described them as “amazing numbers”.
Netflix has pinned its future potential on growth outside the US, where it doesn’t yet face the same level of competition. Europe and Latin America have been the company’s engine in the past couple of years, and continued to serve that role in the fourth quarter. Netflix added 4.4-million customers in Europe, bringing its overall total to almost 52-million, and another 2.04-million customers in Latin America.
Netflix plans to release more than 100 seasons of local language programming next year. Though its biggest global hits are mostly English-language shows such as Stranger Things and The Witcher, its most popular programmes in many territories are in other languages, such as Spain’s La Casa de Papel. The company is also experimenting with different pricing plans in Asia.
Netflix has borrowed billions to fund all this programming, and its long-term debt stands at almost $15bn. But the company said this past year will mark the high-water mark in terms of its cash burn. Earnings of $1.30 a share also handily beat analyst estimates of 30c, lifted by a tax benefit.
Investors weren’t sure what to make of Netflix’s results at first. The shares had dropped as much as 3% to $327.97 in extended trading before rebounding, then drifted lower again on Wednesday morning into the open. The company’s shares had climbed 4.5% so far this year before Tuesday’s close.
“After several years of unchecked dominance in the US streaming-video industry, Netflix faces high-profile new streaming rivals,” Geetha Ranganathan, a Bloomberg Intelligence analyst, said in a report. “Yet the breadth of its content and a compelling value proposition will make it hard for new entrants such as Disney+ to unseat the company.”