Netflix Subscriber Growth Slows Amid Heightened Competition
Of Netflix in the premarket right now down about 5% after the streaming service came out with earnings that missed estimates when it comes to a new subscribers and the forecast for future subscriber growth, a sign That the post pandemic future for the streaming company may be a little more cloudy than expected a foursome insights we welcome Eric Hagstrom, forecasting analyst at E Marketer. Good to talk with you this morning, Eric. What's your takeaway from Netflix Earnings should be thinking now that this company is in a better position when viewers have fewer options and her sort of shut in Well, let's let's look at the big picture. First off, they've added more subscribers so far in the first three quarters of 2020, then they did all of last year 2018 and those were their two best years ever in terms of music. Hi, Brad In total. Now, when you look at their major markets like the U. S, where there are already over half of all household in the U. S, described Netflix and more than half You already have access to it via password sharing things like that growth in subscribers. I always love And now this is something that Netflix was cautioning against in the first half of this year, where they saw really, really strong subscriber adds worldwide, so they missed their subscriber guidance by about 300,000 drivers but again In context they have just under 200 million subscribers. So it's not a massive change against expectation. So where do you see Opportunities for growth for the company. Now is it reached a saturation point when it comes to subscriber growth. Well, there certainly is a little bit more room for growth in the U. S. In terms of subscriber growth. There still is a good amount of room internationally for subscriber growth, and they are investing in new originals and knew what Contact to really help grow their base internationally. But in some of their more developed markets like the U. S. They are going to have to drive revenue growth by driving prices higher and they do have a significant amount of pricing power despite the competition, But again, subscriber growth could be a lot slower moving forward in the more developed market. As economy start to reopen that opens the possibility for Netflix to begin ramping up production. How crucial is that for the company in terms of getting back on a firmer footing for investors? Well, ramping up production is very important for Netflix. But Netflix does produce the show's on a pretty long time line. So, according to Netflix, at least their constant relief schedule won't be affected until sometime later next year on Dis stands in stark contrast, many of their competitors like Disney or Warner Media. You work in a much shorter production timeline and are already experiencing production delays and content release place as a result. Picnic corona virus and related shutdown. So any, you know, re certain production for Netflix really won't hit their service until sometime later next year, or even in 2022, so they're pretty set for the near future, At least any sort of research and production will be very good for, you know, kind of the mid term for them. Does the restart of production raise cash burn issues for the company. I know on their call last night, they said that they're in a good position and won't have to tap capital markets in our last minute here. Do you buy that? I do To certain extent, they borrowed a significant amount of money to fund future investments in media but again You know this is a company that has been profitable on in a bit of basis for awhile, but they have had negative cash flow, and that situation has been improving with time on Daz the growth subscribers as they drive prices higher. I would expect that that free cash flow issue becomes a lot better over time.