Netflix Q1 Earnings Preview: Subscriber Growth Will Remain In Focus
Investing.com | Apr 20, 2021 15:52
- Reports Q1 2021 results on Tuesday, Apr. 20, after the market close
- Revenue Expectation: $7.14 billion
- EPS Expectation: $2.97
These days, streaming entertainment giant Netflix (NASDAQ:NFLX) is finding it hard to excite investors, after a record-breaking 2020. At the same time that its stock has underperformed the border market in 2021, competition is heating up, putting a question mark on future growth for the Los Gatos, California-based company.
When the subscription entertainment service provider reports its first-quarter 2021 results later today, investors will be looking for solid evidence that the company hasn’t hit a roadblock on its path to growth. And they'll want confirmation Netflix remains positioned to defend its dominance.
Netflix stock closed yesterday at $554.44, providing an almost flat performance for 2021 thus far, after gaining 67% in the previous year. The tech-heavy NASDAQ Index has gained about 8% this year.
Despite these concerns, there are still a lot of reasons to remain positive on Netflix and continue to hold its stock. Last year’s explosive growth in subscribers has secured the company’s long-term appeal.
As well, Netflix is no longer a company that is buying growth by taking on excessive amounts of debt. That was a major concern until recently. Many skeptical analysts once used that to justify their bearish calls as the company borrowed billions of dollars to fund its spending on new programs.
For example, it had negative free cash flow of $3.3 billion in 2019, its worst debt load on record. Since then, however, the company has turned a corner. Free cash flow will be close to break-even in 2021, according to Netflix's latest forecast, with the service having a lot of room to spend on new programming and marketing.
h2 Global Expansion In Full Swing/h2With that leverage, it also doesn’t seem that the competition has yet posed a serious threat to Netflix and its growth plans. Helped by the pandemic-triggered stay-at-home environment, NFLX added a record 36.6 million customers by the close of last year.
This occurred even though many new companies entered the streaming space. The biggest among them was Disney (NYSE:DIS), which added 87 million paid subscribers to its Disney+ offering during the period. This parallel growth suggests that the streaming pie is still big enough for many players to gain market share.
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For Netflix, the biggest advantage is its vast and expanding global reach and the variety of its content. While its North American market is showing some signs of saturation, Netflix is still thriving in Europe and Latin America, where it’s getting most of its new customers.
More than 60% of its customers now live outside the U.S. and Canada, and 83% of its new additions in 2020 came from abroad. Europe supplied 41% of its new customers—almost 15 million people—while Asia added 9.3 million customers, the second most, according to Bloomberg data.
Netflix is succeeding in these global markets by creating content that appeals to local audiences. “Lupin,” a French crime series starring Omar Sy, for example, became the second-biggest debut in the company’s history, watched by 70 million households in its first 28 days on the service. This diversity of programs available is what will help Netflix continue to grow, both at home and abroad, in the face of growing competition.
Bottom Line
It won’t be surprising to see some slowdown in Netflix subscriber growth as the pandemic-induced demand tapers off gradually in 2021. But the company continues to be firmly in control of its destiny, growing in international markets and providing a content pipeline that remains hard to match. This strength makes Netflix stock attractive and a great investment to hold in any long-term portfolio.
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