Black Friday Sale! Save huge on InvestingProGet up to 60% off

Netflix Q1 Earnings Preview: Subscriber Growth Will Remain In Focus

Published 20/04/2021, 06:52
DIS
-
NFLX
-
IXIC
-
  • Reports Q1 2021 results on Tuesday, Apr. 20, after the market close
  • Revenue Expectation: $7.14 billion
  • EPS Expectation: $2.97
  • These days, streaming entertainment giant Netflix (NASDAQ:NFLX) is finding it hard to excite investors, after a record-breaking 2020. At the same time that its stock has underperformed the border market in 2021, competition is heating up, putting a question mark on future growth for the Los Gatos, California-based company.   

    When the subscription entertainment service provider reports its first-quarter 2021 results later today, investors will be looking for solid evidence that the company hasn’t hit a roadblock on its path to growth. And they'll want confirmation Netflix remains positioned to defend its dominance.

    NFLX Weekly TTM

    Netflix stock closed yesterday at $554.44, providing an almost flat performance for 2021 thus far, after gaining 67% in the previous year. The tech-heavy NASDAQ Index has gained about 8% this year.

    Despite these concerns, there are still a lot of reasons to remain positive on Netflix and continue to hold its stock. Last year’s explosive growth in subscribers has secured the company’s long-term appeal. 

    As well, Netflix is no longer a company that is buying growth by taking on excessive amounts of debt. That was a major concern until recently. Many skeptical analysts once used that to justify their bearish calls as the company borrowed billions of dollars to fund its spending on new programs. 

    For example, it had negative free cash flow of $3.3 billion in 2019, its worst debt load on record. Since then, however, the company has turned a corner. Free cash flow will be close to break-even in 2021, according to Netflix's latest forecast, with the service having a lot of room to spend on new programming and marketing.

    Global Expansion In Full Swing

    With that leverage, it also doesn’t seem that the competition has yet posed a serious threat to Netflix and its growth plans. Helped by the pandemic-triggered stay-at-home environment, NFLX added a record 36.6 million customers by the close of last year.

    This occurred even though many new companies entered the streaming space. The biggest among them was Disney (NYSE:DIS), which added 87 million paid subscribers to its Disney+ offering during the period. This parallel growth suggests that the streaming pie is still big enough for many players to gain market share.

    For Netflix, the biggest advantage is its vast and expanding global reach and the variety of its content. While its North American market is showing some signs of saturation, Netflix is still thriving in Europe and Latin America, where it’s getting most of its new customers.

    More than 60% of its customers now live outside the U.S. and Canada, and 83% of its new additions in 2020 came from abroad. Europe supplied 41% of its new customers—almost 15 million people—while Asia added 9.3 million  customers, the second most, according to Bloomberg data.

    Netflix is succeeding in these global markets by creating content that appeals to local audiences. “Lupin,” a French crime series starring Omar Sy, for example, became the second-biggest debut in the company’s history, watched by 70 million households in its first 28 days on the service. This diversity of programs available is what will help Netflix continue to grow, both at home and abroad, in the face of growing competition.

    Bottom Line

    It won’t be surprising to see some slowdown in Netflix subscriber growth as the pandemic-induced demand tapers off gradually in 2021. But the company continues to be firmly in control of its destiny, growing in international markets and providing a content pipeline that remains hard to match. This strength makes Netflix stock attractive and a great investment to hold in any long-term portfolio.

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers
© 2007-2024 - Fusion Media Limited. All Rights Reserved.