Please ensure Javascript is enabled for purposes of website accessibility

Netflix Earnings: Why I'll Be Watching Subscriber Guidance

By Daniel Sparks - Oct 15, 2019 at 11:05AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This metric may provide insight into how management expects intensifying competition to impact the streaming-TV giant's business.

Investors will be watching Netflix's (NFLX -0.01%) third-quarter update closely this week. After whiffing on subscriber growth in its second quarter, the market will be looking for the streaming-TV giant to prove its growth story is intact. In addition, investors will be looking for more strong revenue growth and progress toward its target for a full-year operating margin of 13%.

While Netflix's update on key third-quarter figures will be important, another key area investors should tune into when the company reports earnings is management's guidance for its subscriber growth in Q4. This guidance will be particularly interesting since Q4 will include the launch of two major competing streaming services: Disney+ and Apple TV+.

Will management provide a cautious outlook for the quarter as competition heats up? Or will the company's guidance for subscriber growth suggest Netflix anticipates little impact from the new competition?

Reese Witherspoon, Jennifer Aniston, and Steve Carell on a poster for The Morning Show.

Reese Witherspoon, Jennifer Aniston, and Steve Carell will star in Apple TV+'s "The Morning Show." Image source: Apple.

Here comes the competition

"While we've been competing with many people in the last decade, it's a whole new world starting in November," said Netflix CEO Reed Hastings in an interview with Variety last month. He was referring to upcoming launches of Apple (AAPL -0.30%) and Walt Disney's (DIS -0.40%) new streaming services. Apple is debuting Apple TV+ on Nov. 1 and Walt Disney's Disney+ is coming on Nov. 12.

It's no surprise Hastings thinks things are about change. Disney's new service will feature thousands of movies from iconic studios Pixar and Marvel, Star Wars, National Geographic, and its namesake Disney. Content will include new, original TV shows and movies as well. Making the service even more compelling, it will launch at an aggressive price of $6.99 per month, or $69.99 per year. 

Apple TV+ may not have nearly as much content as Disney, but it's an ambitious undertaking by one of the most well-capitalized companies in the world. It's also priced at an even more aggressive price of $4.99 per month. Though Apple has announced fewer than 10 shows that will be on the service at launch, these productions include dozens of famous producers and actors. The company will be launching new content on the service every month as well, with some shows slated to be released later in November. 

What to look for

Netflix has only provided specific guidance for its third-quarter subscriber additions, but management did clarify in its second-quarter shareholder letter that it expects total subscriber growth in 2019 to be greater this year than in 2018.

Therefore, if Netflix adds the 7 million members it guided for in Q3, this leaves 9.3 million more subscribers the company will have to tack on in Q4 in order for 2019 net member additions to match the total number of subscribers the company scored in 2018. So, investors should look for Netflix to guide for 9.3 million or more new subscribers in Q4 to meet its initial outlook for the year.

No matter how many subscribers Netflix forecasts, investors should look for commentary from management on the intensifying competitive landscape. This context can help them understand how the company is thinking about the impact competition will have on its business.

Netflix will report its third-quarter results and provide fourth-quarter subscriber guidance after market close on Wednesday, Oct. 16.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple, Netflix, and Walt Disney. The Motley Fool has the following options: long January 2021 $60 calls on Walt Disney, short October 2019 $125 calls on Walt Disney, short January 2020 $155 calls on Apple, long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, and long January 2020 $150 calls on Apple. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Netflix, Inc. Stock Quote
Netflix, Inc.
NFLX
$241.13 (-0.01%) $0.02
Apple Inc. Stock Quote
Apple Inc.
AAPL
$174.03 (-0.30%) $0.52
The Walt Disney Company Stock Quote
The Walt Disney Company
DIS
$122.32 (-0.40%) $0.49

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
395%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/18/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.