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Earnings

No signs of chill in Netflix share price after Q4 results

Netflix share price: a man watches Netflix on a tablet

Online streaming platforms have been the big winners of the last 12 months, with the Netflix share price up over 50% in that period

In terms of subscriber numbers, the first half of its fiscal year saw an explosion in the number of people using its service. This growth slowed sharply in Q3 with only 2.2m new subscribers, after the 25.8m new customers it added in the first half. Even allowing for the very modest growth in Q3, Netflix has still managed to add more subscribers in the first three quarters of 2020 than it did in the whole of 2019.

Revenue in the first-half came in at $11.92bn, a record number. The return of live sport to TV screens may have had had something to do with the slowdown in subscriber numbers in Q3, along with some modest price increases to its subscription model.

Netflix share price jumps after Q4 results

Last night’s Q4 numbers have rounded off a huge year for the streaming giant. For Q4, Netflix expected revenue to come in at $6.57bn, while adding another 6m new subscribers, and the company managed to beat expectations on both counts: 8.51m new subscribers were added, with revenues of $6.64bn, sending the Netflix share price up sharply after US markets had closed.

Netflix subscribers are now north of 200m at 203.7m, with the company now looking to target an operating margin of 20%, as well as being cashflow positive by the end of 2021. Netflix also said it might well consider share buybacks, given the strong performance this year, as its strategy of spending billions of US dollars on new content continues to pay dividends.

Q4 profits did come in a little below expectations at $1.19 a share, however the extent of the beat on subscribers with projections of 6m new subscribers for Q1, as well as a profits target of $2.97 a share, means that the Netflix growth story remains on track, despite the increases in prices we’ve seen over the past quarter. 

Netflix still leading in a highly-competitive market

For the last three months the Netflix share price has traded sideways, albeit still fairly close to last year’s record highs, with investors slightly cautious that the recent Netflix momentum was slowing as Apple and Disney began to get their act together in what is a highly competitive market.

Despite the growth being shown by its competitors, and while Netflix does trade at a premium price compared to its peers, it can justify this by way of a much richer content library, as well having a strong non-English content slate, which also sets it apart internationally.

It has a strong content slate with season three of Star Trek Discovery, season four of The Crown, and the Queen's Gambit, while production has started on the fourth season of Stranger Things, which lands later this year. Disney+ and Apple TV+ may have bigger pockets and a cheaper price tag, but in terms of TV and film content they remain miles behind.

The continued closure of cinemas into this year is likely to keep these subscriber numbers fairly buoyant, with most attention on its international markets for future growth prospects.


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