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Netflix Earnings Ahead: Eyes On Membership Amid Streaming Wars, Original Content

JJ Kinahan


If Netflix Inc (NASDAQ: NFLX) investors were the type to jump through hoops of fire, they may have done that when the nominations for the 92nd Academy Awards ceremony were recently announced.

NFLX stole headlines with its unprecedented 24 Oscar nominations for original content. That’s more than any of the traditional movie makers it’s vying against. Not bad popcorn for a media-services-provider-turned-online-streaming-giant that got into the movie business by renting DVDs in 1997.

That said, nominations don’t necessarily equal Oscars and Oscars don’t equal higher stock prices. If they did, NFLX’s then-record 15 Oscar nominations last year might have helped temper the rocky ride the stock took in 2019.

Much of the pain appeared self-inflicted: the company fell well short of its Q2 membership guidance, and then it raised prices just as new competitors Walt Disney Co’s (NYSE: DIS) Disney+ and Apple Inc.’s (NASDAQ: AAPL) Apple TV+ were warming up to launch their own streaming services. That, to many analysts at the time, spelled trouble and their notes to clients reflected that.

NFLX’s Rocky Road To Recovery

The volatility leveled off in late September, but by then NFLX shares had lost about 30% of their value. This was after analysts and the broader streaming community realized that NFLX membership base wasn’t going anywhere after the Nov. 11 launch of Disney+. Since then the stock price has shown signs of recovery.

But there’s room for more than one streaming service on most customers smart phones and TVs, stated a Raymond James analyst. So maybe the talk about streaming wars is overblown.

By year’s end the stock had recovered and is up better than 33% now since that 55-week low in September—a solid performance but one that lagged the Communications Services sector, which ended the year on a tremendous run (see figure 1 below).

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FIGURE 1: WATCH THIS. After bottoming out in late September, shares of Netflix (NFLX - candlesticks) forged ahead, but still lagged the Communications Services sector ($IXC - purple line), which has been on quite a bull run over the last year. NFLX shares are still well off the all time high of $423, set back in June 2018. Data source: Nasdaq, S&P Dow Jones Indices. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Consider this too: NFLX shares jumped in mid-December after the online streaming concern teased shareholders with a Securities and Exchange Commission filing that unveiled some of its overseas game plan. Apparently, it had been in the works for at least the last three years.

NFLX released historical data on per-region streaming revenue, membership, and average revenue per paying membership going back to 2017. This was part of its commitment to release membership and revenue numbers per region beginning with next week’s Q4 earnings release scheduled for Tuesday, Jan. 21, after the market closes.

Those membership numbers showed strong growth, in both double- and triple-digit percentages.

NFLX Finds Foreign Language Success

NFLX has made efforts in attracting international audiences by offering content in local languages. This has led analysts to pay more attention to information on its international plans. NFLX has made big investments in non-English language content and released some 300 titles alone last year. That’s after more than 700 releases of original content in languages in Europe, Middle East, and Africa (EMEA). They also provide content in the Asia Pacific and Latin American countries.

Providing localized international content could be a big untapped opportunity over the next five years. One Stifel analyst said that if you take Latin America, EMEA, and Asia Pacific combined, there’s a target market of more than 600 million households by 2025. It’s possible NFLX executives are going after that market. If they are, they may not be too concerned about the new streaming entries in Disney+ and Apple TV+ or how Amazon.com, Inc.'s (NASDAQ: AMZN) Prime and AT&T Inc.'s (NYSE: T) HBO Max have been investing in their own content and delivery.

How High Is High?

NFLX’s anticipated fourth-quarter programming lineup could help the company. Expectations are for paid membership subscription adds of 9.7 million, well above the streaming platform’s 7.6 million forecast. This could help the stock price but on the other hand, even if their numbers are above consensus estimates, it’s important to look at the competition as well as production challenges in the international space.

Pricing has always been an important tool for NFLX and it, not surprisingly, will be on analysts’ agenda again. Some worry that once the discounted trials on the new services end, there may be an exodus if some subscribers choose to trade a NFLX sub for one with Apple TV+. This could be a concern, not just for investors but for company executives as well.

And let’s not forget about the ice cream. NFLX teamed up with Ben & Jerry’s ice cream to create a product just for chillin’ or binge-watching movies or shows. And they appropriately named it Netflix & Chill’d. It remains to be seen if the company sees that as merely a quaint aberration or the start of a line of consumer packaged goods. Stay tuned.

NFLX Earnings Projections And Options Data

Analyst consensus for NFLX earnings stands at an average of $0.52 a share, versus $0.30 in the year-ago quarter. Revenue is forecast to reach $5.45 billion, on average, up better than 30% from last year’s revenue of $4.2 billion.

The options market has priced in about a 5.9% price move in either direction around the earnings release.

Looking at the January 24 expiration, volume has been light overall, but heaviest at the 330 and 350 strikes. The implied volatility sits at the 45th percentile as of Thursday afternoon.

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

Information from TDA is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy.

Image by Andrés Rodríguez from Pixabay

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