Netflix shares stumble as company faces new streaming competition

Carla Harmon
January 22, 2020

The stock dropped about 2.5 percent immediately in after-hours trading, likely due to a cautious forecast for the first quarter.

In an earnings call on Tuesday, the company says it added 8.8 million worldwide subscribers during the fourth quarter, surpassing expectations.

The fourth quarter was an important milestone for Netflix, as it was marked its first head-to-head competition with Apple´s $5-per-month streaming service, Apple TV+, and Disney´s instantly popular $7-a-month option, Disney Plus.

The Disney+ service launched in the United States and Canada on November 12 for $7 per month and $13 a month for a bundle with ESPN+ and Hulu; it reached 10 million sign-ups on its first day. Netflix set a company record the following quarter when it added 9.6 million new customers during Q1 2019.

This is the first quarter during which Netflix has been competing against new streaming offerings from Disney and Apple, with further competition expected from the upcoming launches of AT&T's HBO Max and Comcast Corp.'s Peacock, which will be in homes by the summer. "We have seen more muted impact from competitive launches outside the U.S".

The company acknowledged that competitive pressure would have an impact on its USA business, where subscriber growth fell short of analyst estimates.

In fact, Netflix says "The Witcher" is on-track to become "our biggest season one TV series ever", with 76 million member households choosing to watch the show.

Netflix said in its letter to shareholders posted on its website Tuesday that Netflix would continue to prosper despite competition.

In its quarterly letter to shareholders today, the company acknowledged that the launch of rival streaming services hurt results in the US and Canada, where net additions came in at about one-third of where they were in the year-earlier fourth quarter.

Netflix has been investing heavily overseas as its domestic market growth slowed, creating local language content in markets in South America and Europe.

The subscriber growth matched Netflix's performance from the fourth quarter a year prior. Netflix reportedly spent $15 billion on original content in 2019 and is likely to exceed that in 2020. "Friends" left Netflix in the United States this month and will run on HBO Max.

That's all despite the launch of two major streaming services, Disney+ and Apple TV+, with more competition coming this year from WarnerMedia's HBOMax and NBCUniversal's Peacock.

Netflix's Q4 coincided with the release of Disney+ and Apple TV+ and also came before several deep-pocketed companies are set to launch their own services by mid-2020.

Global subscriptions have risen to over 167 million, up 20% year over year. It also reported stronger-than-expected financials, with revenue of $5.47 billion and earnings per share of $1.30, compared to analyst estimates of $5.45 billion and EPS of 53 cents.

Total revenue rose to $5.5 billion from $4.2 billion a year earlier. Analysts were previously expecting Q1 subscriber additions of 7.82 million.

The streaming giant said it added 8.76 million paid subscribers globally compared with expectations of 7.63 million, according to IBES data from Refinitiv.

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