Netflix will present fourth quarter earnings on Tuesday afternoon, closing the coronavirus-altered 2020 book and setting the tone for a more competitive market in 2021.
The streaming leader was recently the first entertainment company to report quarterly results, starting each week’s earnings season. The parents of new streaming rivals such as Disney +, HBO Max, Apple TV +, Peacock and Discovery +, will also soon release the numbers and clarify their progress.
As a global boss with 14 years of streaming under its belt, Netflix hits profit day with 195 million subscribers, more than double the count for fast-growing Disney + and other competitors. The company plans to add 6 million total subscribers in the fourth quarter, reaching 201 million. That would be an improvement over the 2.2 million it added in the third quarter and it would be a 3% increase on a sequential basis. That’s only half the improvement rate at the end of 2019, when the company recorded a 6% increase from the third to the fourth quarter.
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As for financial results, Netflix projects revenue for the fourth quarter of $ 6.6 billion and earnings per share of $ 1.35. Program highlights in the quarter include the fourth season of The crown, the debut of the left field coup The Queen’s Gambit and original films like The Christmas Chronicles 2 and aspiring Oscars like Mank.
Investors recently pressed the “pause” button on Netflix shares. They fell 6% to start the year, ending the last Friday at $ 497.98, a good value below the 52-week high of $ 575.37 established last July. While bulls clearly outnumber bears on Netflix, many skeptics point to recent price increases and slowing growth in the U.S. as sources of concern. For years, the company has had an abundant racing room as a pioneer, but now customers have a growing range of options and other services are being loaded with prestigious titles, some of which are popular library titles taken from Netflix.
Many Wall Street analysts have estimates slightly north of the company’s orientation, despite a “pull-forward” of subscribers during Covid-19 in early 2020. The company added 26 million subscribers in the first half of last year, almost as many new customers as he signed throughout 2019.
Benjamin Swinburne, of Morgan Stanley, reiterated his “overweight” rating on Netflix shares, with a $ 650 target price of $ 12 months. In a note to customers, he highlighted “ample generation of free cash flow in 2022 and beyond”, as well as a wave of more than 70 original feature films, which should reinforce pricing power. The company’s investment in original local programming around the world also offers a “long lead” to the continued addition of subscribers.
JP Morgan’s Doug Anmuth also reiterated his “overweight” rating, with a target price of $ 628. globally and driving a virtuous circle of strong subscriber growth, more revenue and growing profit, ”he wrote in a research note. “We expect Netflix to continue to benefit from the global proliferation of devices connected to the Internet and increased consumer preference for consuming video on demand over the Internet, with Netflix approaching 300 million global paid subscribers by 2024.”
Disney has estimated similar numbers so far with Disney +, but turnover and revenue per user are lower than Netflix’s so far. HBO Max, meanwhile, is looking at 75 million to 90 million subscribers by 2025, about two-thirds of them in the U.S.
A media veteran, Citibank analyst Jason Bazinet, recently recommended Disney as a better vehicle for streaming investment than Netflix. It maintains a “neutral” rating for Netflix shares and last week raised its target price from $ 450 to $ 580.
“We prefer Disney for two reasons,” wrote Bazinet in a note to customers. “First of all, as a late participant, we think Disney has a faster and easier path to undergrowth in the next three years. Second, we suspect that Netflix may experience some setbacks in the coming quarters, as price increases potentially dampen quarterly net adds, tactically disappointing Street. Disney, on the other hand, is able to keep prices relatively stable. “
Netflix’s well-known support, Wedbush Securities’ Michael Pachter, recently issued a surprisingly optimistic assessment, at least by its usual standards. He said the company could be “on the road to sustainable free cash flow”, but he still sees its shares as overvalued. Its 12-month target price is $ 235, with an “underperforming” rating.
While Pachter expects just 5 million new subscribers in the fourth quarter, well below the company’s guidance, he says that revenue should meet expectations due to price increases. The most popular subscription plan in the U.S. went from $ 13 to $ 14 a month.
He also noted the film’s drive to place more than one new landmark film on the platform each week, which he called an “ambitious and expensive goal”. However, the global experience and a great advantage in the management of originals and library fees “made the company maintain its leadership in terms of content over its competitors,” he admitted. “We hope that this leadership will be sustained for the foreseeable future.”