Market News & Analysis
Why Netflix surged
Ken Odeluga October 18, 2019 3:02 AM
Netflix stock continues to surge, with a rise of as much as 8% on Thursday
This comes after the shares changed hands as much as 11% higher overnight. Yet the group’s hotly anticipated earnings were decidedly mixed. In fact, if investors had to come up with the ideal quarterly report in order to justify the purchase of more shares in the streaming video giant, its Q3 results out last night probably wouldn’t cut it. Check out the misses - and spot the handful of important beats – below. (All forecasts via Bloomberg.)
- U.S. streaming paid net additions: up 520,000 vs. estimate of 798,360 rise
- International streaming net additions: +6.26 million vs. +6 million est.
- Revenue: $5.24bn, up 31% y/y, est. $5.25bn
- EPS: $1.47 vs. $1.05 est.
Netflix also provided guidance on the current quarter (Q4) that will see investors revising expectations lower.
- Revenue: $5.44bn, est. $5.51bn
- EPS 51c, est. 82c
- U.S. streaming paid additions: +600,000, est. +1.28 million
- International streaming paid additions +7.00 million, est. +8.04 million
Disparate estimates may account for some of the reaction. For instance, some well-known consensus sources had projected international subscriber growth of 6.9 million, whilst pointing to a rise of around 860,000 in the states.
At root though, what with investor fears about a flood gate of looming competition (including Disney+) whilst subscribers appeared set to top out, NFLX’s quarter showed solid growth and rising earnings. CEO Reed Hastings acknowledged upcoming competitive threats, though said they posed a “moderate” headwind. Critically, the group is sticking to cash generation plans, the key path to eventual profitability. The free cash flow loss is still expected to be reduced to minus $3.5bn in 2020’s financial year.
In other words, the world’s dominant streamer remains in as good financial health as can be expected as its competitive landscape changes. That made the stock’s 20% fall in the year up to last night begin to look excessive. To be sure, growth will still come at a cost that can yet a possible share recovery at risk. For now though, investors continue to buy its confirmed growth story.
From time to time, GAIN Capital Australia Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.
As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.