Don’t panic over Netflix’s new rivals
There’s new competition, but global growth should be enough to keep stock humming
Netflix is far and away the dominant player among streaming platforms. As rivals including Walt Disney and Apple have amped up investments and unveiled their own streaming plans, Netflix investors have appeared mostly unfazed— though they did falter a little when Disney announced its streaming plans last week, sending Netflix shares down 5%. On Tuesday, some of those anxieties resurfaced.
The company posted firstquarter earnings of 76 cents a share, soundly beating estimates of 57 cents a share, and revenue of $4.52 billion—a 22% increase over the same period last year—compared with estimates of $4.5 billion.
On the subscriber front, which is the all-important metric for streaming platforms, it also beat estimates, adding 7.9 million subscribers overseas in the quarter, 31% more than in the same period last year. On the domestic front, however, the numbers were weaker. Netflix added around 1.7 million U.S. subscribers, compared with nearly 2.3 million in the same period last year.
That slowing growth in the domestic market is likely what caused investors to send the stock down in after-hours trading. Netflix also guided to lower-than-expected earnings for the second quarter: 55 cents a share, compared with the 99 cents per share analysts had forecast.
The lower guidance is due to a one-time, tax-related item. The larger concern for investors is whether Netflix can maintain its rapid pace of growth, especially in the U.S., as rivals edge their way into the crowded streaming space. The company sought to reassure investors that new entrants won’t affect its growth “because the transition from linear to on demand entertainment is so massive and because of the differing nature of our content offerings.”
Companies such as Disney and Apple have strong brand names and big checkbooks; investors are right to worry somewhat. But investors already knew that domestic growth was bound to slow. The good news domestically is Netflix doesn’t appear at risk of losing substantial share to upstart competitors anytime soon.
Meanwhile, international growth continues to be strong. Netflix says it expects 5 million net subscriber additions in the second quarter, including 4.7 million internationally. That is more or less in line with analyst expectations. With that international growth, investors are unlikely to cancel Netflix for Disney+ anytime soon.