Netflix June Content Slate Outweighs Competitive Impact
Netflix’s business is a mixed bag. On one side, the company is seeing the impact of competition in the form of increasing domestic churn. On the other side, international continues to outperform expectations, suggesting that the underlying growth opportunity is intact.
Shares of NFLX were up 2% in the aftermarket following the company’s Q4 earnings report. Netflix guided to a strong Jun-20 quarter, suggesting the company’s spring content release schedule will help combat increasing competition. Factoring in a typical March quarter beat and the June guidance, Netflix is maintaining its outlook for paid sub adds for the first half of 2020. This is a directional positive — a sign that Netflix is successfully navigating increased competition and the associated pricing pressure.
Netflix Will Meet Paid Net Add Expectations
We continue to believe that, despite the threat of increased competition, Netflix will achieve analysts’ paid net add estimates in 2020. The Street is expecting paid net adds of 26.6m in 2020 (2.7m domestic, 23.9m international), exiting the year with a base of 192.5m paid subscribers, up from the reported 167m at the end of 2019.
We Remain Cautious Longer Term
Apple TV+ and Disney+ are essentially free today through various promotions. Netflix has historically increased paid subs despite competition from Amazon’s Prime Video offering, which is also essentially free. Including video offerings with other paid products and services creates a temporary perception of value in the minds of consumers and an opportunity for video providers to hook viewers, but, eventually, that perception changes.
In 2021 consumers will have to make more thoughtful streaming decisions. Promotional pricing from Apple TV+ and Disney+ will come to an end. We believe the increased competition will ultimately weigh on the Street’s paid net add estimates of 26.1m in 2021 (2.5m domestic, 23.6m international) exiting the year at 218.6m.