Netflix Gains as Viewers Stay In; Sarandos Now Co-CEO
We are raising our FVE to $200 from $160 to account for the revenue impact of the larger subscriber base and slightly faster margin expansion than previously expected.
Netflix (NFLX) posted a second straight quarter with impressive subscriber growth as people continue to demand entertainment options at home during the COVID-19 pandemic. Despite subscriber additions coming well ahead our estimate and guidance, revenue was in line with our projections for the quarter. We still view much of the subscriber beat as a pull-forward of longer-term growth and expect the global rollout of Disney+ and the recent launches of Peacock and HBO Max to increase churn. However, we are raising our FVE to $200 from $160 to account for the revenue impact of the larger subscriber base and slightly faster margin expansion than previously expected.
Netflix also announced the appointment of chief content officer Ted Sarandos as co-CEO with the firm’s longtime leader, Reed Hastings. While Hastings stressed his intention to stay on for another decade, we view the elevation of Sarandos as a sign that Hastings may push off more of the day-to-day operations onto Sarandos, who will retain his CCO title. Hastings will likely spend more of his time on strategy and new initiatives for the firm.
Netflix posted much stronger-than-expected subscriber growth (10.1 million net adds, including 2.9 million in the U.S., versus guidance of 7.5 million). The company no longer provides guidance for both domestic and international net adds. Netflix continues to expand its streaming base, ending the quarter with more than 193 million global paid subscribers, up from 152 million a year ago. Growth in the quarter was spread across the four global regions, with each handily beating their comps from a year ago. However, the U.S. was the only region to post more customer additions quarter over quarter as the lockdown has lingered in the U.S. longer than in other countries. We view the third quarter guidance for 2.5 million net adds as a little conservative, but the number does reinforce management’s contention that the second half of the year will be weak.
|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.