Factors to Consider Ahead of Netflix's (NFLX) Q1 Earnings

Netflix NFLX is set to report first-quarter 2019 results on Apr 16. In the U.S. Streaming segment, the company anticipates to gain 1.6 million subscribers, down 29.8% from the year-ago quarter.

Netflix raised prices of all its streaming plans in the United States in early January. Per AP, the price hike range of 13-18% was the highest in the company’s history. Price for Netflix’s most popular plan was increased from $11 to $13 per month. This hike is likely to hurt domestic subscriber growth rate in first-quarter 2019, and can also increase churn rate projections for the second quarter.

This is primarily due to increasing competition from the likes of Disney (DIS) and Apple. Disney (DIS) has a bigger content package that it will offer at a lower price. Hulu’s content strength along with price reduction of its basic ad-supported plan to $5.99/month is expected to attract subscribers.

Click here to know how the company’s overall Q1 performance is expected to be.

International Expansion & Cash Burn to Continue

Netflix’s expanding international footprint is likely to drive results. In the last reported quarter, the company added 7.31 million paid subscribers, better than projections of 6.10 million.

Netflix expects to add 7.3 million paid subscribers in the International segment, up 22.1% year over year. Management expects international ASP to increase year over year, excluding foreign exchange.

Based on these factors, international streaming revenues are estimated to surge almost 31% to $2.35 billion, almost in line with the Zacks Consensus Estimate.

Netflix, Inc. Revenue (TTM)


Netflix, Inc. Revenue (TTM) | Netflix, Inc. Quote

Netflix’s focus on regional programming has strengthened its content portfolio that is attracting new users. The company released a number of shows in Spanish, Korean, French, Hindi and Portuguese in the first quarter.

Apart from content, Netflix is experimenting with lower-priced mobile-only plans in the Asia-Pacific (APAC), particularly in India ($3.63/month) and Malaysia ($4/month), and making the service available at almost half the original price.

However, competition is also intensifying in the international markets, not only from regional players like Hotstar and iFlix but also from U.S.-based players like Alphabet’s GOOGL YouTube, Amazon AMZN, and Facebook FB. These companies are spending heavily on regional content to increase user base.

In order to acquire quality content and sustain market share, Netflix is spending heavily in international markets. However, this has affected its profitability and free cash flow.

Netflix reported free cash outflow of $1.32 billion in the last reported quarter compared with $859 million in the previous quarter. Moreover, the company’s streaming content obligations were $19.3 billion at the end of the fourth quarter.

Netflix expects free cash outflow rate in 2019 to be similar to that in 2018 ($3 billion), which is a major concern.

Netflix currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

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