Netflix's NFLX earnings report disappointed as the all-important subscriber adds missed expectations even as content acquisition/creation costs continue unabated and subscription prices remain stationary. The earnings report, new content additions, upcoming competition from Walmart and initiatives in TV and radio are the stories covered in this roundup. Here are the details-
Netflix shares tanked on lower-than-expected subscriber numbers (670,000 net domestic adds and 4.47 million international versus forecasts for 1.23 million domestic and 5.11 million international). What's more, the company guided for 5 million subscribers (650,000 domestic and 4.25 million international) in the third quarter compared to consensus estimates of more than 6 million.
Analysts are divided about whether this was a near-term phenomenon or the beginning of a trend given Netflix's penetration and the growing competition. Management didn't offer any satisfactory explanation, which didn't help things either. Some have surmised that World Cup soccer played spoilsport.
Netflix also missed on revenue, partly attributed to a currency effect that was less positive than expected as the dollar strengthened. Management said that short term changes in the currency inevitably told on the bottom line because it didn't have a hedging system in place. A move away from dollar denominated sales is expected going forward.
The good thing is that despite these negatives, the company still topped the Zacks Consensus Estimate on the bottom line by 5 cents, or 6.3%.
The hugely successful "Springsteen On Broadway" musical will be coming to small screens via Netflix on Dec 15, ending its two-year run at the theaters where it grossed $76 million through 236 shows that were seen by more than 151,000 people. The Netflix special features the "master storyteller, humanitarian and voice of the everyman" in Bruce Springsteen. The music icon has thus far won Grammy, Oscar and Tony awards and the Netflix show might just put him in the running for an Emmy. Given its popularity, the show should be a big attraction for Netflix subscribers.
The company also announced the first shows and series based on stories that it acquired through the Millarworld acquisition last year. Millarworld's hugely popular comic book franchises, including Wanted , Kingsman , Reborn , Empress , Kick-Ass and Jupiter's Legacy have found their way into publishing, cinema, clothing, video-games and toys over the past fourteen years. Founders Mark and Lucy Millar are now working at Netflix to take their stories to the small screen. Some of the new movies announced are 'Empress' with screenplay written by Lindsey Beer, 'Huck' by Ted Melfi and 'Sharkey The Bounty Hunter' by Michael Bacall. The new series are 'Jupiter's Legacy' from Steven S. DeKnight and a multilingual version of 'American Jesus'.
Competition from Walmart
Fresh rumors suggest that paid video streaming operations Netflix, Hulu and Amazon AMZN will have company as soon as the fourth quarter. Walmart WMT is reportedly expanding its presence in the market through its Vudu entertainment division. Vudu currently sells or rents on demand 150,000 titles and streams from a library of 5,000 titles through its Movies on Us streaming service. While the streaming service is currently free and ad-supported, the company will soon add a paid layer, costing subscribers $8 a month.
It's also been reported that while Amazon and Netflix are more popular along the coast lines, Walmart's core customer base is more in the mid-western region, which is where it's likely to focus.
In early 2017, Walmart tried to enter the market and then scrapped its plans for some reason. That could be partly why it has refused to comment on the "rumors and speculation."
TV and Radio Initiatives
Netflix has tweaked navigation for those accessing the service on their TV screens. Now there's a ribbon menu on the left that pops out when you move in that direction, which neatly displays the "Search" button, "My List," "Movies", "TV" and "New," so you can quickly get back to where you started when searching for something to watch. Plus, auto playing snippets of shows and movies will be displayed above the rows of content suggestions to facilitate quick selection and content discovery. The improved navigation has become necessary because the content on the platform has increased manifold in the last few years, so it can now be quite difficult to choose from among the "Trending Now," "Comedies," "TV Dramas," "Top Picks" and other options that it throws up at you.
Netflix has also partnered with Sirius XM Holdings SIRI to launch a radio channel to promote its stand-up comedy specials and air original content. Called Netflix Is a Joke Radio, it is designed to attract Sirius customers to its platform while also serving as a first step into audio.
It makes sense that Netflix used comedy for the new venture because that genre has done rather well for it. The company recently announced a new comedy series for 2019 featuring 47 comedians from across the world. Netflix has spent heavily to woo star comedians like Chris Rock, Dave Chappelle, Amy Schumer and Jerry Seinfeld, with Rock and Chappelle reportedly making $20 million per special, while Seinfeld garnered $100 million for two specials and new episodes of his series "Comedians in Cars Getting Coffee."
Netflix shares carry a Zacks Rank #3 (Hold). For better investment options, you can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
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