ByJoe Flint and Micah Maidenberg
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 22, 2020).
Netflix Inc. missed its forecast for U.S. subscriber growth for
the third straight quarter, but blew through its expectations for
overseas expansion, a mixed performance that comes as the streaming
giant faces heightened competition from a gaggle of rivals.
The Los Gatos, Calif., company said Tuesday that it added
423,000 domestic subscribers in the fourth quarter, compared with
its forecast of 600,000 additions. It also posted an increase of
8.3 million subscribers in overseas markets, more than the seven
million the company was expecting. It now has 167 million
subscribers world-wide, including 60.4 million in the U.S.
Shares in Netflix were up 2.3% in after-hours trading on
Tuesday.
The results underscore that Netflix has two very different
stories to tell Wall Street at the moment. Its operations abroad
look as promising as ever, without any sign of a significant
competitive threat, while clouds are beginning to gather in the
company's home market, where rivals are offering new services and
chasing creative talent in Hollywood.
In November, Walt Disney Co.'s Disney+ streaming platform went
live with a $6.99 monthly service that offers a range of content
including animated classics and the "Star Wars" and Pixar
franchises. Disney said a day after the service began that it had
signed up 10 million users, but the company has yet to provide
updated results.
Apple Inc. launched Apple TV+ the same month, offering consumers
access for $4.99 a month. Netflix's standard plan costs $12.99 a
month. Apple has a relatively small offering of original shows and
doesn't possess the vast libraries of classic programming that
Netflix and others have.
This spring, Comcast Corp.'s NBCUniversal and AT&T Inc.'s
WarnerMedia plan to introduce their direct-to-consumer streaming
services: Peacock and HBO Max, respectively.
On a call with investors and analysts, Netflix Chairman and
Chief Executive Reed Hastings said the new competition wouldn't
prompt significant strategy changes at the company. "We've had the
same strategy for 20 years: Please our members and they help us
grow," Mr. Hastings said.
Disney+, Mr. Hastings said, is likely to take just "a little
from us" and pose a bigger threat to traditional television.
"We compete very broadly for viewing...and our viewing on a
per-member basis is up," he said.
In a letter to shareholders, Netflix attributed the company's
softness in the U.S. and Canada to the new competition, as well as
to the effects of price increases being rolled out to its
users.
The company said it has a "big head start in streaming" and
believes it will "continue to prosper," even in a tougher
battleground. The growing number of streaming services, Netflix
told shareholders, will harm traditional TV, not its own
business.
Mr. Hastings also explained why Netflix doesn't want to
introduce an advertising-supported version of its service. "There's
not easy money there," he said, adding that the company would be
hard-pressed to take ad business away from Amazon.com Inc.,
Facebook Inc. and Alphabet Inc.'s Google.
He said Netflix wants to be "the safe respite" for its
subscribers, with "none of the controversy around exploiting users
with advertising."
Netflix's Europe, Middle East and Africa segment powered the
company's international growth, with 4.4 million subscriber
additions and a 42% jump in revenue. The Latin America segment
added 2.04 million users. The Asia region is growing the fastest,
but it is also the smallest -- with just 16 million paid
subscribers.
Netflix reported a fourth-quarter profit of $586.9 million, or
$1.30 a share, as a one-time tax adjustment bolstered the bottom
line. Revenue rose 31% to $5.47 billion.
New content the company premiered during the quarter included
"The Irishman," a film about organized crime, and "Marriage Story,"
a movie about the demise of a marriage. Each film received multiple
Oscar nominations.
Netflix has begun to face questions about the sustainability of
its growth, particularly in the U.S. The company lost domestic
customers for the first time in nearly a decade in the second
quarter of 2019, and narrowly missed its growth forecast the next
period. Netflix has said price increases have damped growth to some
extent as they roll out across the company's footprint, and has
pointed to rising revenue per customer.
Still, Netflix has a huge lead over streaming rivals and is
adding international customers at a rapid rate the rest of
Hollywood envies. Wall Street has remained optimistic about
Netflix's potential, with shares in the company rallying over the
past several months after a skid last year.
Alongside the race for subscribers, Netflix is also battling new
competitors -- including some whose services have yet to be
launched -- to sign up talent and rights to key programming.
Holding on to popular old shows is proving challenging. "Friends"
ended its run on Netflix at the end of last year and will be
available on HBO Max later this year, while Comcast's Peacock
service will carry reruns of "The Office" starting in 2021. Other
popular Netflix content, such as "Grey's Anatomy, " is expected to
roll off the service as contracts expire.
Ted Sarandos, Netflix's chief content officer, said on the
analyst call that the service hasn't experienced any negative
impact from the loss of "Friends," a situation-comedy.
Netflix did acquire streaming rights to "Seinfeld" when it
leaves Hulu in 2021, and continues to bid aggressively for popular
shows.
The company is investing heavily in original TV shows and
movies, betting that such content will ultimately keep subscribers
happy.
Among the original titles Netflix said performed well in the
fourth quarter were "The Witcher," the stalker drama "You," "The
Crown" and the cartoon "Big Mouth."
Netflix still discloses little viewing data for its content. In
previous quarters, it provided the number of member households that
watched 70% or more of a title. Now it is providing the number of
member households that started watching a title and stuck with it
for at least two minutes.
The company said it made the change because the 70% methodology
favored shorter-form content. However, the new approach can also
boost the numbers by 35%, the company said.
Using the new metric, Netflix said "The Witcher" had the biggest
debut season of any series on the service, with 76 million members
watching at least two minutes during the show's first month on the
platform. The latest season of "The Crown" attracted 21 million
member households in its first month of availability.
Netflix is estimating it will add seven million paid users in
the first quarter, compared with 9.6 million a year earlier, in
part because of the challenges in the U.S market.
Write to Joe Flint at joe.flint@wsj.com and Micah Maidenberg at
micah.maidenberg@wsj.com
Corrections & Amplifications Netflix has 167 million
subscribers world-wide. An earlier version of this article
incorrectly stated the figure as 174 million in one instance. (Jan.
21)
(END) Dow Jones Newswires
January 22, 2020 02:47 ET (07:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
Netflix (NASDAQ:NFLX)
Historical Stock Chart
From Apr 2024 to May 2024
Netflix (NASDAQ:NFLX)
Historical Stock Chart
From May 2023 to May 2024