Netflix Earnings Beat in Q4, but Weaker Outlook Points to Rising Competition
Investing.com - Netflix (NASDAQ:NFLX) delivered a quarterly earnings beat, but its weaker outlook on subscriber additions intensified fears that rising competition would rein in growth.
Following the launch of streaming services from Apple (NASDAQ:AAPL) and Disney (NYSE:DIS) last year, Netflix said it expected to add 7 million net subscribers in the first quarter, well below Wall Street expectations of 8.5 million. That is also below the 9.6 million subscribers added in the first quarter last year.
Netflix blamed weaker guidance on higher churn levels in the U.S.
"Our Q1’20 forecast reflects the continued, slightly elevated churn levels we are seeing in the U.S. plus an expectation for more balanced paid net adds across Q1 and Q2 this year, with seasonality more similar to 2018 than 2019," Netflix said. "This is due in part to the timing of last year’s price changes and a strong upcoming Q2 content slate, where we’ll have some of our bigger titles like La Casa De Papel (aka Money Heist) season 4."
The streaming giant reported 550,000 U.S. and Canada streaming additions, missing forecasts of 611,000, but fared better internationally adding 8.33 million subscribers during the quarter, well above the 7.2 million expected.
Netflix announced earnings per share (EPS) of $1.30 on revenue of $5.47 billion. Analysts polled by Investing.com forecast EPS of $0.52 on revenue of $5.45 billion. That was in comparison with EPS of $0.30 on revenue of $4.19 billion in the same quarter a year before. Netflix (NASDAQ:NFLX) had announced EPS of $1.47 on revenue of $5.24 billion in the previous quarter.
Analysts are forecasting EPS of $1.21 and revenue of $5.76 billion in the next quarter. Netflix said it expects to report first-quarter revenue of $5.73 billion and earnings per share of $1.66.
“The biggest challenge for Netflix in this dynamic situation is how to maintain a fine balance between growth and spending," Investing.com analyst Haris Anwar said. "The company’s huge content and marketing budget can only be justified if the company is adding more subscribers. If that doesn’t materialize, then its stock has to reflect that reality, especially when Netflix is borrowing to fuel growth,”
“In our view, Netflix will continue to lag behind other mega tech stocks until investors are able to see a clear sign that the company is holding up well and can defend its turf. Strong subscription growth in 2020 is crucial to achieving that outcome."
Netflix shares are up 4.58% since the start of the year and are trading at $338.40, still down 12.33% from its 52-week high of $385.99 set on May 1, 2019.
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