Not Going Anywhere: Netflix Exceeds Earnings Projections But Braces For “Headwind” From Disney+

CHIANG MAI ,THAILAND - March 31, 2018 : Close up Netflix website in laptop screen. Netflix being popular internationally.
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After missing global growth targets last quarter, Netflix has bounced back in convincing style, revealing it met its earnings projections and added more paid subscribers than anticipated.

As a result of the promising Q3 results, shares of the video streaming service were up 10 per cent in after hours trading on Wall St on Wednesday.

The company posted revenue of $US5.24bn ($7.72bn), which was in line with analysts’ predictions, while GAAP earnings were $US1.47 per share, way above the predicted $US1.05 per share mark.

It also added 6.8m paid subscribers in the last three months, which was in line with external predictions, but lower than the company’s forecast of 7m.

The latest results were a far cry from the financials released just three months ago – in which the company revealed it had added only 2.7m subscribers – which prompted Netflix CEO Reed Hasting to send a letter to shareholders denying rumours that the company was looking to introduce an ad-supported tier to boost revenue.

But the latest results come as the market prepares to welcome competiting services Disney+ and Apple+ next month.

In a letter to shareholders, Netflix addressed the elephant in the room, acknowledging the new services may cause “modest headwind to (the company’s) near-term growth”.

“Many are focused on the ‘streaming wars,’ but we’ve been competing with streamers (Amazon, YouTube, Hulu) as well as linear TV for over a decade,” the letter continues.

“The upcoming arrival of services like Disney+, Apple TV+, HBO Max, and Peacock is increased competition, but we are all small compared to linear TV.”

Everyone wins… except linear

But according to Netflix, more competition in the streaming space is good for everyone. That is, unless you’re a traditional TV network.

“Streaming video services have mostly exclusive content libraries that make them highly differentiated from one another,” the letter reads.

“In our view, the likely outcome from the launch of these new services will be to accelerate the shift from linear TV to on demand consumption of entertainment.”

The letter also likened the current rise of streaming to the previous emergence of cable networks, reminding investors these networks “didn’t take much audience share from each other, but instead, they collectively took audience share from broadcast viewing”.

 

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