Netflix Plot Twist Was Foreshadowed
October 20 2020 - 6:35PM
Dow Jones News
By Dan Gallagher
Previews are often not an accurate reflection of a show's
quality. But Netflix nailed it three months ago in projecting its
third-quarter results.
Those results, posted Tuesday afternoon, showed only 2.2 million
net additions to the company's base of paid streaming subscribers.
That was actually a bit below the 2.5 million Netflix projected,
though it did reflect the great "pull-forward" the streaming giant
has experienced with the coronavirus pandemic. Nearly 26 million
paid subscribers were added to the company's rolls in the first
half of the year, nearly equal to what Netflix averaged annually
over the last three years.
Wall Street didn't fully believe that outlook. Analysts were
estimating about 3.6 million additions for the third quarter,
according to FactSet. The company's projection for 6 million new
streaming subscribers for the fourth quarter also fell a bit short
of Wall Street's 6.3 million target. The pandemic's freeze on
productions boosted the company's free cash flow to a record $1.1
billion in the third quarter. But Netflix investors tend to focus
solely on subscriber growth, and thus the stock fell 6% following
the report.
Even given a flat performance since the company's first downbeat
projection three months ago, Netflix shares remain up 62% for the
year -- second only to Amazon among megacap internet names. So high
expectations are still baked in, creating some risk heading into
the new year against tough comparisons and an ultra-competitive
field. The past 12 months have seen the addition of major new
streaming services owned by companies like Disney, AT&T and
Comcast -- all of whom have deep libraries and a strong incentive
to pour more resources into their efforts. Disney is even under
pressure from an activist to kill its dividend to free up more
capital to make exclusive programming for its Disney+ service.
All will be hard pressed to catch up to Netflix, given its early
lead and still-strong momentum. The company's disappointing
fourth-quarter projection still reflects the addition of 34 million
streaming subscribers this year -- record growth even as
alternatives abound. The greatest competitive threat facing Netflix
at the moment is comparison to its own recent past.
Write to Dan Gallagher at dan.gallagher@wsj.com
(END) Dow Jones Newswires
October 20, 2020 18:20 ET (22:20 GMT)
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