Netflix (NFLX) Q3 2020 Earnings – a Disappointing Quarter Amid a Broad Miss on Most Expectations
Netflix (NASDAQ:NFLX), a behemoth in the online content streaming sphere, is in the limelight today as it gears up to publish its earnings for the third quarter of 2020.
The company reported its much-anticipated scorecard just moments ago, missing expectations on key metrics.
Netflix (NASDAQ: NFLX) Financial Scorecard
For the three months that ended on the 30th of September 2020, Netflix reported $6.436 billion in revenue, beating consensus expectations by $56 million.
(All figures are in billions of dollars)
Netflix added 2.2 million new subscribers during the third quarter, missing expectations of 3.262 million net additions. The company had guided to net additions of 2.5 million while reporting its earnings for Q2 2020.
(All figures are in millions)
On a more granular level, Netflix’s revenue and subscription growth breaks down geographically as follows:
(All revenue figures are in billions of dollars; all net adds are in millions)
Moreover, Netflix reported operating cash flow of $1,264 million during Q3 2020. The company’s positive cash flow is a result of a marked slowdown in content expenditure amid the ongoing coronavirus (COVID-19) pandemic and the attendant production difficulties.
(All figures are in millions of dollars)
Finally, Netflix reported an EPS of $1.74, missing consensus expectations by $0.39.
(All figures are in dollars)
For Q4 2020, Netflix expects net additions to its subscriber base of 6.0 million. For the entire FY 2020, the company now expects an operating margin of 18 percent and a growth in the subscriber base by a record 34 million.
Investors have reacted negatively to Netflix’s earnings release, with the stock registering a loss of nearly 6 percent in the after-hours trading.
Today’s earnings come in the wake of a significant endorsement by Morgan Stanley on the 16th of October. As an illustration, the bank hiked its Netflix stock price target from $600 to $630, citing "short and long-term benefits" from the pandemic-related changes. Moreover, the analyst Benjamin Swinburne postulated that Netflix’s competitive moat is "perhaps deeper than ever". According to Swinburne, this gives Netflix ample room to extract value from its considerable pricing power.
Bear in mind that on the 15th of October, KeyBanc had also raised its Netflix stock price target from $590 to $634, while noting that concerns surrounding the growth in the subscriber base, in the wake of the Cuties controversy, "may be overblown” and that the media landscape still "favors Netflix".
Of course, competition concerns these days are not very far when it comes to Netflix. Recently, Disney (NYSE:DIS) embarked on a major reorganization effort, with streaming becoming its “primary focus” when it comes to entertainment. Accordingly, the company is planning to bring its media and entertainment divisions under a single banner that will be responsible for content distribution, ad sales, and Disney Plus. Moreover, according to a study by Kantar, Comcast’s (NASDAQ:CMCSA) Peacock streaming service added the most subscribers during Q3 2020, capturing 17.2 percent of the entire growth in the streaming sphere. This was followed by Amazon’s (NASDAQ:AMZN) Prime Video service at 16 percent, AT&T’s (NYSE:T) HBO Max at 11.3 percent, Hulu at 9.5 percent, Disney Plus at 9.1 percent, Netflix at 8.3 percent, and then Apple TV Plus (NASDAQ:AAPL) at 4.9 percent.
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