Netflix tempers 1st quarter results with 2nd quarter warning.
Streaming TV giant beats estimates but expects slow growth for next 3 months
Netflix said Tuesday that it added more new subscribers during the first quarter than it had expected, but its growth forecast left something to be desired in the eyes of the streaming TV giant’s shareholders.
Shortly after U.S. stock markets closed, Netflix reported that it gained 9.6 million new paid subscribers in the first quarter of 2019, to give it 148.86 million subscribers worldwide. Of its new subscribers, Netflix said 1.74 million came from the United States, while it added 7.86 million members in its international markets.
Those results topped Netflix’s earlier estimate that it would add 8.9 million new subscribers between January
and March.
Netflix also reported a first-quarter profit of 76 cents a share, on $4.5 billion in revenue, compared with Wall Street analysts’ expectations for earnings of 58 cents a share, and sales of $4.5 billion. During the same period a year ago, Netflix earned 64 cents a share, on $3.7 billion in revenue.
For its second quarter, Netflix said it expects to add just 5 million new subscribers around the world. Although Netflix still foresees its subscriber base growing, its outlook falls short of the 5.5 million new subscribers its added in the second quarter of 2018.
Netflix also forecast second-quarter earnings of 55 cents a share, on $4.93 billion in revenue.
Netflix recently insti
tuted a price increased that raised its most-popular subscription offering to $12.99 a month from $10.99. In a statement announcing its results and outlook, the company said the response to the price change in the U.S. “is as we expected,” and that it is seeing “some modest shortterm churn effect (customer turnover) as members consent to the price change.”
In after-hours trading, Netflix shares initially fell
more than 4 percent before recovering somewhat, and remained down by 1.4 percent, at $354.31.
As Netflix depends on monthly subscriber fees to fund both its acquisition of programming from outside sources, and to finance its slate of original and exclusive content, the forecast for slowing subscriber growth initially raised concerns about the company’s ability to grow at a time of more competition in the streaming TV market.
Last week, Disney said it would roll out its longawaited Disney+ service in November at a price of $6.99 a month. In late
March, Apple held an event to show off some of the programs slated for its upcoming Apple TV+ service that will launch later this year for a not-yet-known monthly fee.
Speaking on a conference call about Netflix’s results, Chief Executive Reed Hastings was diplomatic about Netflix facing new competition from Disney and Apple, but also clear about how he thinks Netflix will do against those companies and their content libraries and deep pockets.
“Great competition makes you better,” Hastings said. “We thrilled to have Apple and Disney in
(the streaming mariket. (But), on a prctical basis, there’s already so much competition. Disney and Apple add more, but it’s doubtful they will be material (competitors). It’s exciting for us.”
But analysts that cover Netflix had differing views about the impact Disney, in particular, could have on Netflix in the future.
“(Netflix is) completely missing the fact that Disney + consists of a lot of content that is currently available on Netflix,” said Michael Pachter, media analyst with Wedbush Securities. “It’s like FootLocker saying they don’t mind if Nike, Adidas and Reebok pull all their content and go direct to consumer, because they still have Brooks, New Balance, Skechers, Keds and their private label sneakers. I think it’s naïve to the point of being insulting to investors.”
“It’s clear that the U.S. market is getting saturated (for Netflix),” said Gene Munster, managing partner with Loup Ventures. “The domestic headwind is particularly worrisome given that it doesn’t factor in the upcoming competition from Disney+ and Apple TV+, both set to launch in the U.S. this fall.”