Investors learn about the past, present and future


Key points to remember:

  • Membership growth may slow
  • New genres, including the game in the works
  • Sony and Spielberg’s future films

Once again, Netflix (NFLX) is playing the numbers game – past, present and future.

When second quarter results are released tomorrow, Wall Street expects gangbuster earnings and income, but many investors will likely focus on how many new members have joined the online streaming service. A warning to the wise: be aware that comparisons are difficult.

In fact, hard might not be a strong enough word. Last year’s remarkable membership growth was off the charts, connecting at 10 million in the second quarter of 2020 to give the first half of that year alone a record 26 million new users.

Can the NFLX beat that? Well, if the first quarter of this year is any indication, maybe not, but we’ll have to wait and see.

Don’t be judge

But consider the context before making a judgment. The pandemic was largely responsible for the rise and fall of the NFLX last year and this year. As consumers stuck at home have turned to their sofas and oversized screens for most of their entertainment, NFLX has done the trick. Membership has skyrocketed, hitting a staggering 203.7 million at the end of 2020. Its stock price soared from March 2020 to January 2021.

But the first quarter results fell like a rotten tomato. The growth in membership was far less than Wall Street had expected and even missed the generally conservative brand offered by the company’s own C-suite. They reached 3.98 million, the lowest result since 2013, when just three million customers joined the club.

NFLX executives then told investors to prepare for the worst, as the challenges ahead amid vaccinations and economic reopening would be exhilarating. They predicted that the new members would only increase by a million, a fraction of the 4.44 million Wall Street predicted.

“We had those 10 years where we could get as smooth as silk,” Reed Hastings, executive chairman, said during the company’s taped call in the first quarter. “It’s a little wobbly right now.”

If NFLX is on track with a million new members in Q2 – and remember, the team has only been consistent with its conservative forecast – it will come back to the early days of the service, when a million was considered a good performance. Only it won’t be this time.

This, of course, should make sense when pandemic strains are factored in and people want to go out to eat again, to see a movie, to attend a concert. But Wall Street isn’t even buying the one million figure this quarter, instead falling in the 1.5 million to 1.75 million range.

JPMorgan analyst Doug Anmuth’s calculations on his analysis of NFLX app downloads total up to two million. It is still near the levels of the start-up era of the business.

How many churn rates are there?

What could be much more interesting are the numbers of falls. How many subscriptions are still in play? Known as “churn,” cancellations on video streaming services ranging from NFLX and Disney + (DIS) to Apple TV + (AAPL) and Peacock (CMCSA) were mostly in medium to high numbers recently, with Apple. TV + in the high-end with 15.6% in the fourth quarter, according to Antenna, a start-up analysis team. NFLX was the lowest at 2.5%, thanks in large part to its gigantic library.

Overall, according to Deloitte’s Digital Media Trends edition released in April, industry-wide churn rates edged down in February, to 36%, from 38% in October. However, they were still more than double the 14% churn rate of May 2020.

“Acquiring followers is a challenge, but retaining them can be more difficult,” Deloitte vice president Kevin Westcott said, according to The Hollywood Reporter.

“For people who are considering subscribing to a brand new paid video streaming service in the past year, the cost outweighs the content,” Westcott added. “And a price increase was the number one reason subscribers say they would be canceling a service.”

This leads some analysts to expect an increase in the NFLX churn rate after the October price hike. Despite this, with its leadership position in the industry and catalog of content, many don’t expect it to do much harm.

Content is still king

Speaking of content, many analysts expect the production downturns during the pandemic to be fully ended in the quarter, mainly thanks to vaccinations paired with the billions of dollars that the NFLX said it plans to do. spend: $ 17 billion for the year, up from $ 12.5 billion in 2020 and $ 14.8 billion in 2019. What does the upcoming content lineup look like?

JPMorgan’s (JPM) Anmuth, for his part, who believes Wall Street’s feelings about the NFLX this quarter “remain fairly low-key,” has high hopes for second-half content, telling clients he expects it to have its strongest six-month content list ever.

Moreover, he added, the further the distance from the pandemic’s withdrawal from membership, the better the chances of advancing in “under-penetrated” international markets such as South Korea and the United States. China.

The future of the NFLX

The quarter was marked by announcements about how NFLX is developing its children’s programming and how it took a page out of the DIS playbook by selling merchandise at a dedicated online retail store linked to its original content programming.

On July 14, he announced the long-standing expansion into video games, hiring a former executive from Electronic Arts (EA) and Facebook (FB) to lead the effort. Bloomberg reported that the games will serve as a new genre of programming, much like what it has done with documentaries or stand-up specials.

So far, according to Bloomberg sources, there are no plans to charge extra for content, but weather is still a better indicator of how that might turn out. Analysts hope to learn more about all of those plans as well as the estimated five-year $ 1 billion deal with Sony Pictures.

The pact, unveiled in April, gives NFLX the exclusive US broadcast rights to Sony films such as the upcoming “Morbius” and “Uncharted” once they have been released in theaters and in the United States. Requirement. The deal also provides for Sony to create and produce two to three films for NFLX to stream directly.

“This not only allows us to bring Sony’s impressive list of beloved movie franchises and IP news to Netflix in the United States, but it also establishes a new source of first-run movies for Netflix moviegoers from across the country. whole world, “Scott Stuber, global manager of NFLX films, said in a statement then.

And what about Steven?

As in Steven Spielberg, arguably the director of some of America’s most beloved films – ET, anyone? He’s hopping on the streaming service’s bandwagon after years of denouncing it in what pundits have said is a sign of changing dynamics in Hollywood and the NFLX muscle is flexing in the industry.

Call it what you want, but it was eye-catching when NFLX and the iconic director announced that Spielberg’s Amblin partners would be making “multiple” feature films per year for NFLX streaming.

“Steven is a visionary and a creative leader and, like so many others around the world, my childhood was shaped by his memorable characters and stories that were enduring, inspiring and awakening,” Ted Sarandos, Co-CEO and CEO of the NFLX. responsible for content, said in a statement. “We look forward to working with the Amblin team and are honored and thrilled to be a part of this chapter in Steven’s cinematic history.”

Any glimpse into this partnership is something analysts have said they are eager to hear. There’s plenty on the NFLX agenda to stay tuned when the results are called.

Netflix earnings and options activity

NFLX is expected to post adjusted EPS of $ 3.15 per share, down from $ 1.59 in the previous year quarter, according to estimates from third-party consensus analysts. Revenue is expected to reach $ 7.32 billion, up 20.3% from the previous year.

Options traders have valued a 5.9% two-way move in stocks around the upcoming earnings release, according to the Market Maker Move indicator. Implied volatility is at the 38th percentile on Monday morning.

Looking at the July 23 expiration, the call volume is spread out but with some concentration at the 550 strike. But the strongest concentration has been on the decline, in the 500 puts.

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

TD Ameritrade® Commentary for educational purposes only. SIPC member. Options involve risk and are not suitable for all investors. Please read Characteristics and risks of standardized options.

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