Sign up for our free daily newsletter


Get the latest news and some fun stuff
in your inbox every day

Netflix 1Q - beats on earnings

Netflix recorded numbers post the market close last evening, they are always presented in an orderly fashion via a shareholder letter from co-founder and CEO Reed Hastings - Q117 Letter to shareholders. For the time being the main metrics to focus on for the company will be the number of subscribers that they can continue to add, coupled with the most important thing for the subscribers, namely, content. Revenue growth of nearly 35 percent year-on-year, on net additions (of subscribers) of around 5 million (3.53 in their international business). Total subscribers (paying members) nearly reached 100 million, with a roughly even split between the US and their "international" business. Subscriber numbers were actually short of company and the Street consensus.

Content matters more than anything else in this business. At the end of the day, all the original content being generated is going to attract new and keep existing costumers. And that will mean spending heavily in order to keep up with all the traditional providers and then of course, those folks that may be newer entrants into this heavy streaming space. It is a constantly evolving space between new and existing platforms. Cord cutters are many. If you only need access to movies and series, then this is for you. If you desperately need to watch sport and love that (I do), then you need to find another way. Expect more streaming sports in the coming years, where people can pay per program viewed, either live or with a short delay. Sport, you have to, have to, watch live.

The earnings transcript is always a great place to find information about the business (you'll have to sign up for the free service) - Netflix's (NFLX) CEO Reed Hastings on Q1 2017 Results - Earnings Call Transcript. What Netflix can do, is always to partner with eager local content producers who want their content to have a global audience. I have watched some international movies with subtitles, the content is magnificent, it is just out there without big enough audiences. Of course the factor that keeps these countries with poor internet infrastructure away from the main drag is exactly that, bad internet speeds. As those improve, no doubt the ability to grow across emerging markets exists.

What is interesting is that Reed Hastings says that they have YouTube envy. He suggests that the company is at the early stages of internet movies, whilst YouTube and Facebook have a much larger audience. Except the content you watch on both of those channels is normally shared by people of a like mind (Facebook), or is a search function (YouTube). Netflix is served to you, and whilst the review process has changed recently (from 5 stars to thumbs up and thumbs down), it does take a little longer for the company to get the "mix" right. They experienced this first hand in Brazil, a massive market with a growing middle class.

We know the deal. Facebook and YouTube have adverts and attract many more eyeballs. Netflix is paid for content. Netflix is at the early stages of a global revolution in content generation and content serving. Some of the older and more traditional (one-way) content providers have been unable to breach certain ceilings in subscriber numbers. If you buy Netflix now (at nearly 150 Dollars a share, a 63 odd billion Dollar market cap), you are certainly buying the future. Revenues should continue to grow at a healthy click, earnings are not likely to exceed 3 Dollars this year. Which means that the stock actually looks cheaper than at any point. If you own them, keep them and definitely pay attention to who is generating content and what the consumer wants out there. Their original stuff is amazing (both reality, series and documentaries), and finally people are finding a young and fresh platform.


Other recommended stocks     Other stories about NFLX