| Author | Message | ||
     Entrepreneur Kurra Bewarse Username: Entrepreneur Post Number: 3952 Registered: 05-2011 Posted From: 24.164.46.35 Rating: N/A |
Netflix crashes on lower-than-expected streaming paid net adds in Q4 and lackluster Q1 guidance (384.18 -124.07) Netflix (NFLX -24%) is crashing today after the TV and movie streaming company missed its global streaming paid net adds guidance for Q4. The company added just +8.28 mln in the quarter, below its +8.50 mln forecast, marking its worst net adds in any fourth quarter since 2017. Furthermore, the company guided to a paltry +2.5 mln net adds for Q1. As a result, many investors are calling curtains on the FAANG stock. In Q4, NFLX smashed earnings estimates, posting earnings of $1.33 per share. The beat included a sizable unrealized gain from FX remeasurement, which slightly dampens it. However, operating margins of 8.2% easily topped NFLX's prior guidance of 6.5%, so even without the FX gain, NFLX appears to have still beaten on EPS. As was the case last quarter, revenue was virtually in-line with consensus, jumping 16% yr/yr to $7.71 bln. Due to FX and content release fluctuations, EPS and revs are not scrutinized the same way as NFLX's other metrics. Thus, even though NFLX expects EPS of just $2.86 and revs growth of only 10.3% yr/yr to $7.90 bln in Q1, both of which are below consensus, we think subscriber growth, both domestically and abroad, primarily moves the stock. As a result, for NFLX's +8.28 mln paid net additions in Q4 to come in below its expectations by about 2.6% was enough to spook investors, especially when coupled with NFLX's disappointing net adds guidance of just +2.50 mln for Q1. NFLX did not do much to put water on the fire either, noting that it is tough to pinpoint why its net adds are not bouncing back to pre-pandemic levels. The company did quell concerns that fierce competition from Disney (DIS) through its Hulu offering and Amazon (AMZN) could be stealing subscribers by commenting that its sustained engagement and retention numbers do not point to a material competitive impact. In fact, NFLX stated that growth by competitive services only validates the positive trends seen in streaming over the years. It was encouraging to see that the EMEA region led net additions in Q4 at +3.54 mln. Also, the UCAN (US and Canada) region's +1.19 mln net adds were NFLX's largest since 2Q20. Average revenue per user (ARPU) also continued to climb in UCAN, going to $14.78, a jump of 9.4% yr/yr and 0.7% sequentially. However, a rough patch stemmed from India, which is included in the company's APAC region, where ARPU fell yr/yr and sequentially. While NFLX is raising its membership prices about 11% globally, it is lowering its price in India, sparking concerns that the company may be hitting the ceiling on its ability to attract more subscribers. NFLX does have to compete with a radically lower price for pay-TV in the area (Indians pay roughly $3/month), which could be fueling the price drop. Bottom line, the pronounced slowdown in global streaming paid net additions, both as realized in Q4 and as expected in Q1, is a significant letdown for the streaming giant. Matters are not helped by NFLX's relatively rich valuation of 35x FY22 earnings. Although the massive drop in share price today makes the valuation more attractive than the 39x multiple at which it traded yesterday, it still looks rather steep. Even though NFLX's rivals DIS and AMZN do not trade at much better valuations at 34x and 57x FY22 earnings, respectively, the companies are also more diversified in their revenue streams. Nevertheless, NFLX has established itself as a household name worldwide. Therefore, even though we think it may be better to remain on the sidelines given the current environment, where high multiple tech names continue to experience a correction as investors weigh multiple interest rate hikes this year, a further drop would make NFLX attractive for buy-and-hold investors. |