Netflix Reports Q4 Earnings on Tuesday: 5 Key Things to Watch

Netflix is heading into a newly competitive era in streaming this year, and investors are eager for more detail on how its business will hold up against new rivals.
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Break out the popcorn: Netflix is due to report its fourth quarter results next week. 

Between the launch of Disney+ and Apple TV+ and fresh revelations about Netflix's international growth, last quarter was an eventful one for Netflix investors. And 2020 may be a critical year for the company as competitors crowd in to the growing streaming market. 

Analysts polled by FactSet are expecting earnings of 52 cents per share on $5.45 billion in revenue for the quarter. 

Here are a few key issues to watch when Netflix (NFLX) - Get Report posts its latest earnings on Jan. 21 after the market close (TheStreet will be live blogging the earnings release and video interview with executives; please check our home page then for more details). 

1. Domestic Subscribers

Netflix’s stock has reacted historically to notably positive or negative results on U.S. subscriber growth. The U.S. is its most mature market, and this will likely remain a closely-watched number for Netflix’s holiday quarter. Analysts anticipate 623,000 net adds in paid U.S. subscribers for the fourth quarter, an increase from the prior quarter’s 517,000. Whatever number Netflix reports, investors will try to read the tea leaves on what that figure means in the context of growing competition in streaming.

2. International Growth

As domestic growth levels off, Netflix plans to reveal more about how it’s doing internationally. The company announced in its last earnings release that it’ll begin breaking out subscriber and revenue numbers for four regions: The U.S. and Canada; Europe, the Middle East and Africa (EMEA); Latin America; and Asia-Pacific. In mid-December, Netflix released details on its international performance as of the end of the third quarter, notably that the lion’s share of its international subscribers are in Europe, but that its presence in Asia grew faster -- up 62% year-over-year. Investors can expect more commentary on what these figures mean this week.

3. Competitive Landscape

The entry of major new streaming players -- namely Disney (DIS) - Get Report, Apple  (APPL) , and AT&T’s (T) - Get Report HBO Max and Comcast’s (CMCSA) - Get Report Peacock coming this spring -- is a source of worry for Netflix investors. The company makes the case that a rising tide lifts all boats, and Netflix bulls tend to agree. But a lack of switching costs -- subscriptions are month-to-month in most markets -- mean that Netflix is theoretically at the mercy of subscribers’ content whims. Netflix likely won’t waver from its high-minded past commentary on what competition means for the business, but investors may scrutinize Netflix’s subscriber guidance for any signs of pressure from increased competition.

4. Pricing Experiments

Outside of periodically increasing prices, Netflix has been fairly consistent in its approach to doing business: No ads, a laissez-faire attitude on password sharing, and flexible month-to-month subscriptions. Some of that could change. For instance, Netflix's product chief hinted that the company could explore “consumer-friendly” ways to discourage password sharing. It’s also experimenting with annual subscriptions in some markets. If implemented widely, such changes could bring more consistency to its all-important subscriber figures.

5. Content Costs

Last but not least, making premium content doesn’t come cheap -- Netflix spent $15 billion on content last year, and will spend at least that in 2020. Netflix’s head of content Ted Sarandos also shared a somewhat staggering statistic on its last earnings call, telling investors that the cost of a typical “very competitive” show increased by roughly 30% between 2018 and 2019. Netflix has shown little sign of tamping down spending on content -- "The Irishman," for example, reportedly had a budget of $175 million. Sarandos defined the return on investment at a recent conference by saying big-budget films enhance the value of the service in the eyes of consumers -- and particularly now that we’re in the midst of awards season, with Netflix garnering a plethora of Oscar nominations this week, expect to hear Netflix executives elaborate on this thesis.