Skip to Content
Stock Analyst Update

Netflix Posts Strong International Subscriber Growth

We are retaining our narrow moat rating and are raising our fair value estimate.


Netflix (NFLX) ended 2019 with stronger-than-expected international subscriber growth but lower U.S. subscriber net adds than the previous guidance. While revenue met our expectations, segment operating margin came in below our projections. The free cash flow loss for the quarter was a record $1.7 billion, raising the loss for the year to just under $3.3 billion (16% of total revenue). While the firm expects to “only” lose $2.5 billion in 2020, we think that it will continue to burn cash on annual basis for at least the next three years.

We are retaining our narrow moat rating and are raising our FVE to $150 from $135, primarily from incorporating faster international customer growth, albeit at lower average revenue per user as Netflix rolls out cheaper plans to compete in emerging markets. We believe the combination of market saturation, competition, price sensitivity, and lack of compelling new series will continue to weigh on net additions as seen over the last three quarters, and limit the level and number of price increases that the firm can implement. We also expect that the stronger competition in the U.S. and internationally will necessitate continuing increases in content and marketing spending, which would result in continued cash burn and limited margin expansion over the next five years. In short, we still believe Netflix’s current share price does not consider the potential changes to consumer behavior that a combination of higher prices and increased competition could create, to the detriment of the core business.

Revenue of $5.5 billion came in line with our estimate. Netflix posted stronger-than-expected subscriber growth in the international segment (8.3 million net adds versus guidance of 7.0 million) but slower growth in the U.S. (0.4 million net adds, versus guidance of 0.6 million). Netflix continues to expand its streaming base, ending the quarter with more than 167 million global paid subscribers, up from 139 million a year ago.

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 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:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

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.