Netflix Misses on Q3 Customer Adds
Subscriber growth at Netflix in third quarter came in below our estimate and management’s forecast.
Subscriber growth at Netflix (NFLX) in third quarter came in below our estimate and management’s forecast. The firm likely pulled some growth forward during the first half of 2020, though we suspect increased competition in the U.S. also played a role. Despite the miss on subscriber additions, revenue was in line with our projections for the quarter. We still expect the global rollout of Disney+ and the recent launches of Peacock and HBO Max to increase churn and pressure customer growth over the next year. We are maintaining our narrow moat rating and $200 fair value estimate.
Netflix added 2.2 million net new customers, including only 180,000 in the U.S. and Canada (UCAN), versus guidance of 2.5 million. The firm no longer provides expectations for both domestic and international net additions. Netflix ended the quarter with more than 195 million global paid subscribers, up from 158 million a year ago. The growth slowdown in the quarter was spread across the four global regions, with each well behind their numbers from a year ago. Asia-Pacific was the only region to post more than 1 million customer additions in the quarter as the region remains least penetrated for Netflix.
Revenue of $6.4 billion was in line with our estimate considering the firm’s increasing overseas presence exposes it to currency fluctuations. UCAN revenue improved 12% year over year as the firm benefited from the 2019 price hike and a larger subscriber base. Monthly revenue per customer was up 2% versus a year ago to $13.40 which implies that the majority of the customer base is on the standard HD plan at $12.99, with a growing share on the 4K plan at $15.99. While Netflix did recently push through a price hike in Canada, we don’t see much room for price increases in the U.S. in the near term with increased competition at lower prices. However, given the weak net adds in the quarter and continual content cost increases, Netflix may be tempted to increase prices despite potential churn impact.
|Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.|
Neil Macker does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.