Netflix rebounds as subscriber numbers grow – but stiff competition is mere weeks away
Netflix Inc. added slightly more paying subscribers than Wall Street expected in the third quarter, a relief to investors who had worried the company might fall short just as Disney and others prepare to ramp up the streaming video wars.
The results for July through September represented a rebound from the previous quarter when Netflix lost U.S. streaming customers for the first time in eight years and missed targets for new subscribers overseas. Shares of Netflix rose 9.2 per cent in after-hours trading on Wednesday to US$312.69.
That performance, combined with concerns about new competitors, had weighed on Netflix shares, which had fallen 21 per cent from the last earnings report through regular trading on Wednesday.
For the third quarter, Netflix was boosted by new seasons of shows such as Stranger Things and 13 Reasons Why. The company added 6.77 million paid customers around the globe, topping the nearly 6.7 million average expectation of analysts, according to IBES data from Refinitiv.
“Netflix results were good enough that they assuaged concerns about price sensitivity and penetration levels in the domestic markets,” said Fitch director Patrice Cucinello. “A caveat is that competition hasn’t hit yet.”
The company projected it would pick up 7.6 million customers in the last three months of the year. Analysts had expected a forecast of 9.4 million. The company will release a new installment of The Crown and Martin Scorsese film The Irishman during that time.
But it will face new competition starting in November from Disney+, a streaming service from Walt Disney Co. that will be stocked with movies and TV shows from Disney’s popular Marvel, Star Wars, animation and other properties.
Apple Inc. also will debut a much smaller streaming video service with original programming in November. AT&T Inc.’s HBO Max, and a new offering from Comcast Corp., are expected to enter the market next year.
The likely outcome from the launch of these new services will be to accelerate the shift from linear TV to on demand consumption
Netflix letter to investors
Netflix argued that the new services would increase interest in the streaming video market broadly.
“In our view, the likely outcome from the launch of these new services will be to accelerate the shift from linear TV to on demand consumption of entertainment,” the company wrote in a letter to investors.
Netflix acknowledged, however, that it was still taking a hit from price increases that took effect earlier this year in the United States.
“Retention has not yet fully returned on a sustained basis to pre-price-change levels, which has led to slower U.S. membership growth,” it said.
For the third quarter, Netflix’s net income rose to US$665 million, or $1.47 per share, from US$403 million, or 89 cents per share, a year earlier.
Total revenue rose to US$5.25 billion from about US$4 billion. Analysts on average had expected US$5.52 billion.
In the next earnings report, Netflix will begin disclosing revenue and membership by regions — Asia Pacific, Europe, Middle East/Africa, Latin America and the United States, the company said.