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Netflix Earnings (2Q 2019)

05 August 2019  |  TRADING IDEAS

Highlights

Netflix (NASDAQ: NFLX), the world largest online streaming company, released second quarter 2019 financial results.

  • The number of domestic subscribers declined after the company increased the subscription price
  • The company keeps financing its activities by borrowing every two quarters
  • Releasing popular series in 3Q19 such as “Stranger Things”

Financial results


While the number of international subscribers grew by 2.8 million to 91.5 million, the U.S subscribers decreased by 0.13 million to 60.1 million in the last quarter. How did this decrease impact the company’s financial results?


Netflix increased quarterly revenue by 26% year-on-year to $492 million and operating profit by 50% YOY to $706 million in 2Q19, which approximately doubled the revenue total on the previous year. Though the number of domestic paid memberships decreased, the company made record-high revenue and operating profit.

Due to price increase, number of subscribers declined

Netflix had forecast to increase the number of paid memberships by 5 million in the previous quarter, but it resulted in 2.7 million which fell below expectations. The company introduced a subscription price increase in January 2019 which resulted in a decline in new memberships.


Netflix raised prices in the U.S. in January 2019 with the most popular standard plan from $10.99 to $12.99.

Netflix Chief Executive Reed Hastings said the lower subscriber growth was due to the price increase in the U.S. Though paid membership decreased, ARPU increased globally.


Especially in the U.S., ARPU increased significantly by $3.9. With this simple calculation, it had an impact of approximately $200 million.


Looking into the revenue by regions, U.S. streaming gained $2.3 billion in revenue and $852 million in operating profit, while international streaming gained $2.5 billion in revenue and $416 million in operating profit.


Looking back on the original Q2 forecast in the previous quarter, the company achieved the target both in revenue and profit.

Mr. Hastings stated that there wasn’t a material change in the competitive landscape during Q2 and the company still has the high market share.


Mr. Hastings is clearly conscious of the fact that rival streaming services from Apple and Disney are about to enter the marketplace in the coming months.

Other financial data


Cost of revenue increased slightly year-on-year, but cost structure has not changed largely.


The content asset ($21 billion) accounts for the big part of the company’s total assets. Cash and cash equivalents increased by $1.7 billion to $5 billion from the previous quarter.

The company has raised cash with interest-bearing debt ($12 billion of long-term debt). Retained earnings have been accumulated little by little.


Market cap: $158.5 billion

EV: $166.6 billion

EV /  Operating profit: 71

In 2Q19, the company reported $2.2 billion of debt which pushed up cash flow from financing activities. It is noticeable that the company undertakes financing activities every two quarters.

After announcing 2Q results, Netflix shares slid in after-hours trading. Its market cap is $135.81 billion and EV is $166.6 billion as of July 18th. EV / Operating profit is 71.



The third season of “Stranger Things” started on July 4th. Netflix announced that 40.7 million accounts have watched the show since its debut, the biggest-ever audience on the streaming service for any film or TV series in its first four days. It is thought to bring 13% of ex-Netflix users back to sign in. Other than Stranger Things, the company is planning to release another popular series, “Orange is the New Black”, in the third quarter.


Netflix forecasts Q3 global subscribers to increase by 7.0 million with 0.8 million in the U.S. and 6.2 million internationally. The company forecasts that revenue growth based on the additional subscriptions will be $2.4 billion in the U.S. and $2.7 billion internationally.

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The original article was published by Stockclip, Inc. on 18/07/2019.


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