Reports Q4 2020 results on Tuesday January 19, after market close
Projected Revenue: $ 6.6 Billion
EPS Expectation: $ 1.35
Netflix (NASDAQ 🙂 delivered strong profits for investors last year. The streaming entertainment giant took huge advantage of the home environment caused by the global COVID-19 pandemic.
It attracted more subscribers as people who were incarcerated indulged in binge-watching. But that incredible demand for streaming content also attracted other big players, filling the field and creating uncertainty about Netflix's future growth.
When the Los Gatos, California-based subscription entertainment service reports its fourth quarter 2020 results tomorrow, investors will be looking for solid evidence that the company has not run into a roadblock in its explosive growth. And they want confirmation that Netflix remains positioned to defend its dominance.
Despite its strong position in the market, however, it is unlikely that the company's explosive growth will continue forever. During the quarter ended September 30, the paid streaming service added just 2.2 million new subscribers.
That number was well below the 3.32 million forecasted by analysts, as was the company's own more conservative projection. Netflix also predicted it will attract 6 million new subscribers in the fourth quarter, less than the 6.54 million Wall Street estimated.
Although management had already warned that the pop in its subscriber base was not sustainable during the early days of the pandemic, and that growth based on this measure would slow at some point, which is more threatening to the its expansion, is the dormant rivalry within this market segment.
The company's main competitor is Disney (NYSE :), which is gaining significant ground with its Disney + app streaming service. Disney + has already added more than 80 million subscribers in the first year after launch. That's comparable to Netflix's 195 million subscribers in September.
Netflix Underperformance
Global media research firm Nielsen said in its & # 39; Tops of 2020 & # 39; report, seven of last year's 10 most streamed movies were watched on Disney +, which launched in November 2019.
Total viewership underwent a slight shift, according to the market research firm, with Netflix taking up only 28% of the streaming time, instead of 31%. in 2019 – with Disney + accounting for 6%.
But Disney + isn't Netflix's only headache. AT & # 39; s (NYSE 🙂 WarnerMedia division is in the midst of a similar shift as it focuses on its new HBO Max streaming platform. Also Comcast's (NASDAQ 🙂 NBCUniversal is re-adapting its entertainment business to prioritize its new Peacock streaming service.
The underperformance of Netflix stock over the past three months, compared to Disney stock, is a clear indicator of how quickly investor preferences have shifted.
While Netflix's stock fell about 8% during that period, Disney managed to make an impressive comeback after the March dip, up 39%. The Netflix stock closed at $ 497.98 on Friday.
Aside from growing competition, what makes Netflix more vulnerable among the FAANG group is the company's tight cash position. Since the service spends a lot to develop its exclusive shows and conquer international markets, it burns a lot of money every quarter.
To improve its cash position, Netflix increased prices for its most popular plan during the second time the company has done so in as many years. The move could be counterproductive in an environment where people are losing jobs and competition is increasing. In the past, Netflix price increases have slowed subscriber growth, particularly in the more mature US market.
Bottom Line
Netflix Sticks With Home Appeal Made Investors Strong Profits In 2020, But As Competition Increases Some Investors Are Not Sure If This explosive growth rate will continue. That said, Netflix is ??still way ahead of the pack in terms of international reach and depth of content – two areas where competitors take a long time to catch up.
Because of this strength, in our opinion, any post-earnings plunging into Netflix stock should be considered a buying opportunity.
