dChan
Anonymous ID: 628528 April 16, 2019, 3:50 p.m. No.6203323   🗄️.is 🔗kun   >>3398 >>3517 >>3630

Netflix shares drop in afterhours* After Company Projects Sharp Slowdown In Subscriber Growth

*edit

 

Back in January, when Netflix reported unexpectedly poor Q4 earnings, what surprised most investors was the company's unexpectedly weak outlook, especially on the international side, where Netflix warned of a decline in International sub growth, a very concerning development for a company which has largely saturated the local market and is growing almost entirely offshore. Which is why everyone's attention was focused on just how bad subscriber growth Netflix would report after the close today.

 

In retrospect, nobody was prepared for just how bad the final number would be, because moments ago while Netflix reported some rather impressive top and bottom line results, it was the collapse in subscriber growth that is the reason why the stock is tumbling after hours.

 

First the good news: EPS of 76 cents was above the 58 cents expected, with revenue of $4.521 right on top of the expected $4.51. Additionally, the company reported a rather impressive Q1 EBITDA of $584 million, well above the $328MM in Q4. Of course, if that was the extent of it, NFLX stock would be surging. Looking ahead, Netflix reported that Q2 forecast revenue would be $4.928BN, a 26.1% increase Y/Y, which however is below the consensus estimate of $4.95BN, a number which would generate EPS of $0.55.

Looking again at the financials, Netflix said that operating margin of 10.2% exceeded our beginning-of-quarter expectation, as spending was shifted from Q1 to later in the year. The company also revealed that streaming content obligations dipped sequentially in Q1 to $18.9 billion from $19.3 billion, "due in part to the timing of run-of-series commitments" however the company cautioned that as it shifts to more original content, "there will be greater variability in content obligations."

 

However, the reason why Netflix is tumbling after hours is because just like one quarter ago, the growth story is once again in jeopardy as a result of the company's surprisingly weak subscriber forecast: to wit, whereas Wall Street expected Q2 subscribers to rise by 6.09 million, Netflix projected just 5.00 million (0.30MM US and 4.7MM international subs), a sharp slowdown from the 9.6 million paid net subscribers added in Q4, which incidentally was well above the 8.94 million estimate.

In total Netflix now expects total US paid subs of 60.53MM in Q2, and global paid subs of 93.33 million, up 5 million from a total paid subscriber base of 148.9 million in Q1.

In other words, the recent torrid growth pace now appears to be moderating sharply.

 

Which brings up the question - why did Netflix just announce a price hike, to which we bring up the answer provided by Anthony DiClemente last quarter, who was worried that the market is "pricing in perfection" and wondered if the real story behind this week’s price increase is that the company sees revenue coming more from fee increases than subscriber growth.

 

Considering the relatively light subscriber growth forecast for Q2 it appears he may have been right, and the risk is that the price increase alienates even more existing subs, even though the company itself disagrees, saying that price increases in the U.S., Brazil, Mexico and parts of Europe will slow subscriber growth for a brief period, but won’t affect growth in the long run. Netflix is also seeing "some modest short-term churn effect" (people dropping their subscriptions) as the company’s price increases take effect.

 

And then there was Netflix's Free Cash Flow, or rather Free Cash Inferno, which last quarter nearly tripled from a year ago, rising to $1.315 billion.

In other words, Netflix burned $15 million in cash per day. In Q1, things improved somewhat, with Free Cash Burn moderating somewhat, to just $460 million, which however was still 60% more than a year ago.

Of course, with cash burn increasing by $500 million, the company had to give some good news, and said that it is

"still expecting free cash flow to improve in 2020".

(of course they would say that!)

In summary, as a result of the sharp slowdown in subscriber growth, NFLX stock initially tumbled, then rebounded as it tries to find out just how much of a true slowdown management expects, and more importantly, how realistic its forecast is in the context of Disney's dramatic entry streaming.

https://www.zerohedge.com/news/2019-04-16/netflix-slides-after-company-projects-sharp-slowdown-subscriber-growth

 

They have so much off-the-book debt liability through content acquisition's and continual shelf offerings, i.e, new stock offerings to "preferred shareholder's". This shit needs to be cleaned up.

Where are you SEC?