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Netflix Share Price: No Chill For Netflix, As Subscribers Beat Expectations

Published 20/01/2021, 06:23
Updated 03/08/2021, 16:15

One of the big winners of the last 12 months has been online streaming platforms, with Netflix (NASDAQ:NFLX) the market leader in this space, with the shares up over 50% in the last 12 months.

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 seen 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, and last night’s Q4 numbers have rounded off a record year for the streaming giant.

Revenues 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.

For Q4 Netflix said it expected revenues to come in at $6.57bn, while adding another 6m new subscribers, and the company managed to beat expectations on both counts in its numbers last night, adding 8.51m new subscribers, and posting revenues of $6.64bn, sending the shares 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 expectation 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.

For the last three months the shares have traded sideways, albeit still fairly close to last year’s record highs, with investors slightly cautious that the recent Netflix momentum was starting to struggle as Apple (NASDAQ:AAPL) and Walt Disney Company (NYSE:DIS) began to get their act together in what is a highly competitive market.

Despite the growth being seen in the likes of Apple TV+, Disney+ as well as new channels like Discovery+, Netflix is still the market leader in the sector, and while it does trade at a premium price 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 from its peers internationally.

It has a strong content slate with season 3 of Star Trek Discovery, season 4 of The Crown, and the Queens 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 content in terms of TV and film 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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