Netflix's Performance Dented by Competition From Disney and Apple

Netflix reported 550,000 new domestic subscribers, below analysts' estimates. However, it topped forecasts on the international front.
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Netflix added fewer domestic subscribers than expected last quarter, which could fuel investors' concerns about its prospects in the face of increased domestic competition.

TheStreet live blogged Netflix's earnings report and video interview. 

The streaming giant added 550,000 subscribers in the U.S. and Canada, below a consensus of 600,000 according to FactSet. It pinned the miss on pricing changes and the launch of rival services in the U.S. As of the fourth quarter, Netflix began breaking up its subscriber and revenue reports into four regions: UCAN (U.S. and Canada), EMEA (Europe, Middle East and Africa), LATAM (Latin America) and APAC (Asian-Pacific). 

Netflix (NFLX) - Get Report shares were up about 2.3% as investors digested the results after hours. 

"Our low membership growth in UCAN is probably due to our recent price changes and to US competitive launches," Netflix wrote in its shareholder letter. "We have seen more muted impact from competitive launches outside the US (NL, CA, AU). As always, we are working hard to improve our service to combat these factors and push net adds higher over time." 

On the international front in Q4, Netflix topped expectations on subscriber growth, posting 8.3 million new subscribers versus a 7.2 million consensus. 

For Q1, Netflix was guiding for 7 million streaming net adds globally, short of the 8.88 million expected by analysts. "Our Q1 forecast reflects the continued, slightly elevated churn levels we are seeing in the US plus an expectation for more balanced paid net adds across Q1 and Q2 this year," the company wrote. 

Last quarter saw the launch of Disney+ (DIS) - Get Report and Apple  (APPL)  TV+.  More streaming services will launch in the U.S. in the first half of 2020. Comcast's (CMCSA) - Get Report Peacock is due for an initial launch in April 2020, and AT&T (T) - Get Report TimeWarner's HBO Max will launch in May. 

In its shareholder letter, Netflix made the case that despite new competitors entering the arena in the fourth quarter, its viewing per membership grew. Netflix also pointed to a Google Trends chart showing greater interest, as seen in search trends, in The Witcher -- a buzzy TV show that Netflix debuted last quarter -- versus The Mandalorian (Disney+), The Morning Show (Apple TV+) and Jack Ryan (Amazon (AMZN) - Get Report Prime Video). 

"As an example, in Q4, despite the big debut of Disney+ and the launch of Apple TV+, our viewing per membership grew both globally and in the US on a year over year basis, consistent with recent quarters," the company wrote.

On a call with investors late Tuesday, Netflix executives put a positive spin on its U.S. results, reiterating that its members are watching more of its content even if U.S. membership growth grew less than expected.

"The great thing is we’re growing, in Q4 even in the U.S. even with this noise [about new competitors]...that bodes well for our long term opportunity as long as we keep getting better," said Netflix CFO Spencer Neumann. 

Neumann also acknowledged that Netflix's first-quarter guidance was impacted by the same membership churn that diminished its fourth quarter results, as well as a tough comparison with the year-ago quarter. Netflix added 9.6 million new subscribers in the first quarter of 2019.  

"‘It’s comping off the all-time biggest quarter we've had, Q1 of 2019,“ Neumann said, adding that the churn Netflix saw in the fourth quarter is "rolling off" into its guidance for the current quarter.  

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