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Netflix Posts Mixed 3rd-Quarter Results on Slowed Subscriber Growth

GuruFocus.com
·3 min read

- By Mayank Marwah

Netflix (NASDAQ:NFLX) released its third-quarter results on Oct. 20 after the market closed. The streaming giant's earnings missed projections due to a slowdown in subscriber additions after witnessing outpaced subscriber growth in the first two quarters of 2020. Revenue, however, surpassed expectations.

Performance at a glance


The company posted diluted earnings per share of $1.74, which reflected a gain of 18% from the same quarter last year. Revenue of $6.44 billion climbed 23% on a year-over-year basis. Wall Street had predicted EPS of $2.14 on $6.38 billion in revenue.

In a letter to shareholders, the company commented on how Covid-19 has affected its earnings:


"As we expected, growth has slowed with 2.2m paid net adds in Q3 vs. 6.8m in Q3'19. We think this is primarily due to our record first half results and the pull-forward effect we described in our April and July letters. In the first nine months of 2020, we added 28.1m paid memberships, which exceeds the 27.8m that we added for all of 2019. In these challenging times, we're dedicated to serving our members."



The company's shares plunged more than 6% in after-hours trading following the earnings release as it missed earnings and subscriber growth targets for the quarter.

On the global front, the company added 2.2 million paid subscribers during the quarter, which is lower than its own guidance of 2.5 million paid subscriber additions. The company further broke down the numbers to one million subscriber additions in Asia, 760,000 in the region that includes Europe and the Middle East and 260,000 in Latin America. Currently, the company has 195 million subscribers globally.

Road ahead

Netflix does not expect that the pandemic will have much of an impact on its slate of content for 2020. The current production slowdown on account of the outbreak would postpone its big titles towards the end of next year. Netflix projects that the total count of originals will be more in 2021 compared with 2020. It plans to include other movies and shows that it acquired in addition to its original content.

Netflix is facing stiff competition from other media companies like Disney's (NYSE:DIS) Disney + and AT&T's (NYSE:T) HBO Max as they have started streaming movies, television shows and other content. The company, however, said it would not focus on its competitors and would stick to its strategy of trying to improve its service and content every quarter faster than its peers.

For the fourth quarter, Netflix expects revenue of $6.57 billion. EPS for the same period is predicted to be around $1.35 per share. The company expects to add 6 million paid subscribers in the fourth quarter. This is, however, lower than the 8.8 million net subscribers added in the fourth quarter of the previous year. If it reaches its fourth-quarter subscriber guidance, the company will have added a record 34 million net paid customers in 2020:


"The state of the pandemic and its impact continues to make projections very uncertain, but as the world hopefully recovers in 2021, we would expect that our growth will revert back to levels similar to pre-COVID."



Disclosure: I do not hold any positions in the stocks mentioned.

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This article first appeared on GuruFocus.