Why Netflix remains the king of streaming giants

Summary

  • Netflix added a new user base of 37 million during the first half of 2020, a record-breaking addition.
  • It is expecting to have free cash flow positive this year.
  • Netflix is planning to buy back the shares of existing shareholders.

Online streaming sites have been gaining steam since the COVID-19 pandemic arrived. The huge success of Netflix prompted many Over-the-Top (OTT) players to test their luck in the subscription-based streaming business. Players such as Walt Disney (NYSE:DIS), AMC networks (AMC:NASDAQ), Comcast, Discovery (NASDAQ: DCYHF), Viacom (NASDAQ: VIAC), and AT&T are a few to name.

The irony lies in the growth of the Netflix scrip post competitors started to surface. The sweet success of Entertainment services provider, Netflix Inc (NASDAQ: NFLX), is backed by a huge amount of investment, which allowed the platform to carry movies and TV series content and the most expensive shows. It is known to be the most popular for its content and has already won some awards for it.  The launch of Disney+ further created a solid ground for Netflix, which went up to take the top position among the players.

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For example, since the day Disney+ launched its services, Netflix scrip started jumping to over 97%. Shares of Netflix closed at US$ 549.57 each on NASDAQ on 20 April 2021.

Although Netflix is yet to announce financial results for its first quarter of 2021, analysts forecast an 89% up in earnings from the last year’s US$ 2.97 per share. According to a media report, its revenue is expected to grow 24% at US$ 7.13 billion.

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A throwback glance at Q42020 financials ended December.

On January 19, Netflix announced its fourth quarter's result of 2020. The company said it was expecting to be break-even on cash flow.

Netflix's EPS was US$ 1.19, which was expected to be US$ 1.39 through a Refinitiv survey of analysts. Its revenue was US$ 6.64 billion and global paid subscribers’ addition was 8.5 million while it was expected to be US$ 6.626 billion and 6.47 million, respectively.

Though the first three quarters of 2020 recorded a positive cash flow, it was negative in Q4 due to a production delay during the pandemic time. Although production was started in some regions, but not as per the expectation. For the year 2020, free cash flow was US$ 1.9 billion, down over 42% from 2019's US$ 3.3 billion.

Also Read: Why did Netflix Australia pay less tax in 2019?

What does the Future hold?

Since Netflix is expecting to be free cash flow positive this year, the online entertainer said that it would not need to raise external funding. Moreover, it is planning to buy back the shares from its existing shareholder.

According to Netflix CFO Spencer Neumann, Netflix is expected to invest determinedly into the growth opportunities coming first and post that, if any surplus remains, the company will return the same to shareholders via a share buyback program.

Besides, Netflix is also planning to pay the debt back as it currently has US$ 8.2 billion cash in hand. It has taken US$ 15 billion debt since 2011.

However, Netflix's growth story has encountered a setback with the company adding only 4 million subscribers in the first quarter with total global customers touching 208 million at March end, a sharp miss from its expected 210 million. The company also expects the second quarter to witness a flat growth because of the pandemic impacting the content due to production delays.

Netflix Vs Disney+

The biggest rival of Netflix in the segment is Disney+, which launched its services on Nov 12, 2019. Since then, several others have been launching their services online one by one and increased the competitor’s portfolio of Netflix. These include Discovery's Discovery+, AMC Networks' AMC+, Comcast’s NBCUniversal's Peacock, ViacomeCBS' Paramount, AT&T's HBO Max, and others.

Interested Read: Disney nets 146 million paid subscribers in Q4

Even after having so much competition in the market, Netflix shares have jumped over 87% followed by Disney’s 35% since its launch till date.

Simultaneously, AMC Networks reported a 30% rise, Comcast 22%, followed by Discovery and Viacom 21% and 4%, respectively, while AT&T performed negative.

Why Netflix is the top performer?

Netflix added a new user base of 37 million during the first half of 2020, a record-breaking addition as the last time, it had an annual high of 28.6 million users in 2018.

This is mainly because of the COVID-19 Pandemic when people moved to adopt its services to watch TV content as per their own choice. According to a survey by Morgan Stanley, the other reason is that most people in America believe that it has the best content in comparison to the other streaming sites.

Netflix has more than 200 million global subscribers currently.

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