Netflix Subscription Tepid, Is Binge watching on the wane?

Summary

• Netflix reported shortfall in subscriber count to 2.2 million in Q3 2020.
• Netflix (NASDAQ:NFLX) tanked ~7% on 22 October.
• The subscriber numbers fell short of 2.5 million predicted by Netflix and 3.3 million by Wall Street.
• In the “Internet Entertainment” space, new players seem to have given a tough competition to the leader firm Netflix.

Netflix released dismal earnings report for Q3 2020, falling short on its guidance for earnings per share. Besides, Netflix subscriber growth lowered considerably in the third quarter after its subscription skyrocketed in the first half of the year.

Netflix (NASDAQ:NFLX) shares tanked ~7% on 22 October.

The coronavirus pandemic forced millions of people to stay at home. They eventually sought comfort in online entertainment platforms. Despite the blockbuster bump in the first half of the year, Netflix reported new subscriber numbers of 2.2 million in Q3 2020.

The actual number is the smallest of any quarter in years and below Wall Street's expectations of 3.3 million. While the company had predicted 2.5 million subscribers.

Surprisingly, Netflix has lowered Q4 2020 subscriber guidance to 6.0 million.

On positive side of things, its global subscriber numbers stood at 195.15 million as of September 30, which increased from 192.95 million as of June 30. Netflix’s earnings per share of US$1.74 rose from US$1.47 in the year-earlier period. Its revenue of US$6.4 billion met market’s expectations.

Netflix Positive on Strong Future Growth

In its latest shareholder letter, Netflix has expressed the view that the slowdown in the third quarter is primarily because of its record numbers in the first-half results. In the first nine months of 2020, Netflix added 28.1 million subscribers, more than the number of subscribers coming in all of 2019.

Notably, the company has warned its stakeholders that the meteoric gains may not be the same in the first two quarters of 2021 as they were in the same period of 2020. However, Netflix emphasised that a strong growth is expected in the future as the company is continuously improving its services. The quarter-to-quarter fluctuations are very early to decide on its long-run internet entertainment prospects.

Even though Netflix reported less than 3 per cent subscriber churn, its retention rate is healthy. The engagement per household member is also as expected in the quarter.

Good Read: Here’s Why these big giants are in the news- Disney, Amazon

Tough competition from other players

Just in the last year, four new streaming websites have entered the online entertainment segment. Apple, Disney, WarnerMedia and NBCUniversal had launched their online content platforms and have added to the already long list of streaming services.

Amazon Prime Video, Hulu, Apple Tv are giving tough competition to Netflix, to which the company said sportingly that it was “thrilled” to compete with such huge rivals.

While there has been digital streaming booming amid pandemic, Apple TV was recently in news for giving free services. However, Netflix Australia was reported to have increased the fees for its standard plans. To know more about this, CLICK HERE.

Besides, the Walt Disney Company (NYSE:DIS) was recently in news for its strategic moves to take on its competitor, Netflix. To read more about it, CLICK HERE.

The recent announcement by Disney created a stir in the market, as Disney decided to restructure its organisation and focus on producing and monetising its original content. Disney Plus, its recently launched online portal, is doing profitable business and has a subscriber base of 57.5 million as of 27 June 2020.

The competition has ramped up significantly for Netflix. Though, comparing Disney with Netflix is like comparing chalk and cheese.  Netflix and Disney have very different content and a diverse target audience. Also, Netflix is purely into the online streaming business, whereas its competitors have other diversified businesses as well.

Original content production

One of the essential aspects that Netflix has focused on is producing its original content from various countries for worldwide viewing as well as dedicatedly for the country-specific audience. The coronavirus pandemic halted all major series and movie filming this year, including Netflix productions.

Many of its seasons and series were cancelled or postponed. However, few series such as Umbrella Academy and Lucifer were able to hold audiences with their recent seasons. High-profile series was not able to hit the screens.

Apart from its original content, Netflix has also played an important role in other production’s entertainment content. Due to theatres closing this year, many movies premiered on Netflix.

Way Ahead

Netflix has a total of 195.15 million paid subscribers worldwide. In the guidance letter, the company said that they are expecting to have 6 million more paid subscribers during the current quarter on board. If Netflix manages to achieve this number, it will move 200 million subscribers globally.

Overall, despite the low count reported in the guidance report, Netflix is all set for a new yearly record in 2020.