At the start of 2020, Netflix’s [NFLX] share price appears to be showing a strong performance after it gained 4.1% by close 17 January. This share price performance has been compounded by the fact that the streaming giant beat other studios to become the strongest Oscars contender with a total of 24 nominations.
Netflix, and the company’s share price, has a challenging year ahead, however. Later today, Netflix will report its first quarterly earnings figures since competitors Disney [DIS] and Apple [APPL] launched their own streaming platforms. What’s more, Disney’s streaming offering, Disney+, is performing very well. Reports noted recently that the app was downloaded more than 30 million times in Q4 last year after it launched in November.
Furthermore, Netflix’s share price returned 20.8% last year against the S&P 500’s gains of nearly 30% in 2019. This was in stark contrast to previous years in which the company’s share price far outpaced the index. In fact, Netflix’s share price was the worst-performing FAANG stock of 2019.
Number of times Disney+ was downloaded in Q4
So, how is the company’s share price likely to perform on results day and beyond?
Missing the mark
Netflix’s share price soared by 8% in pre-market trading on 16 October 2019, after beating earnings expectations. This was despite the fact that it delivered a mixed report, CNBC notes. It reported earnings per share of $1.47 versus the $1.04 expected, but the company also missed estimates on revenue, landing $5.24bn over the forecasted $5.25bn.
Most importantly, its subscriber count showed some interesting trends. The streamer’s US domestic paid subscriber growth continued to slow as the company gained 517,000 new subscribers versus the 802,000 expected. Meanwhile, its international subscriber count greatly surpassed expectations coming in at 6.26 million against the 6.05 million expected.
Netflix’s US subscriber count is particularly important, as unexpected losses in this area led to a 6% drop 2019. Management have largely blamed this on price increases initiated for its domestic audiences. “Since our US price increases earlier this year, retention has not yet fully returned on sustained basis to pre-price-change levels, which has led to slower US membership growth” Netflix noted in its Q3 earnings report.
However, many investors are concerned that these figures are a result of growing competition, which is likely to continue as NBC and AT&T [T] launch streaming platforms this spring.
Netflix's new subscribers - versus 802,000 expected
What’s expected in Q4 earnings results?
Netflix has estimated that its total paid subscriber number will reach nearly 166 million by Q4, a 19.2% year-on-year increase for the quarter. Revenue is expected to reach $5.4bn and earnings per share $0.52.
As Q4 is the first report since competitors such as Disney and Apple have joined the streaming fray, investors will view these results as a preview of what’s to come for the year.
Netflix's expected Q4 revenue
Investors will also be on the lookout for Netflix’s debt figures. The company’s content spend has not been slowing down with its performance, and it is expected to report $15bn in content investment. Until now Ted Sarandos, Netflix chief content officer, has justified this by saying that big-budget movies and TV series enhance the value of the service in the eyes of consumers. It will be interesting to see how a list of Oscar nominations, for example, will truly impact subscriber growth into 2020.
|PE ratio (TTM)||108.83|
|Operating Margin (TTM)||12.51%|
Netflix share price vitals, Yahoo Finance, 20 January 2020
Is Netflix’s share price a buy?
“We are optimistic about Netflix’s ability to grow through the proliferation of competitive SVOD services, though recognize the timing of the Disney+ launch in the United States and Canada could cause some near-term net adds volatility,” notes Scott Devitt, Stifel internet analyst, MarketWatch reports.
“We are optimistic about Netflix’s ability to grow through the proliferation of competitive SVOD services, though recognize the timing of the Disney+ launch in the United States and Canada could cause some near-term net adds volatility” - Stifel internet analyst Scott Devitt
Goldman Sachs has hiked its Netflix share price target to $450 from $400 as it expects strong Q4 results, particularly among global subscribers. This represents a 32% upside on Friday’s close price of $339.67. The consensus among analysts polled by CNN rate Netflix as a buy and the stock has a Zack’s Rank of hold.