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Category: Stock Market and Netflix
Date: 22 January 2020 Stock Price: $338.11 We take a look at the 4th quarter earnings release of their 2019 fiscal year of Netflix, the worlds leading internet entertainment service group with over 150 million paid memberships. How will they cope with increased competition from both Apple and Disney? The group recorded revenue of $5.467 billion in the 3rd quarter of their 2019 fiscal year but said competition is hurting subscriber number growth in the US.
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About Netflix
Netflix is the world's leading internet entertainment service with over 151 million paid memberships in over 190 countries enjoying TV series, documentaries and feature films across a wide variety of genres and languages. Members can watch as much as they want, anytime, anywhere, on any internet-connected screen. Members can play, pause and resume watching, all without commercials or commitments.
Ten years ago a company like Netflix would have been given a vert slim chance of survival. Today its one of the largest companies in the world based on its market capital, and its also part of famed FAANG stocks. FAANG is a acronym for Facebook, Apple, Amazon, Netflix and Google.
Ten years ago a company like Netflix would have been given a vert slim chance of survival. Today its one of the largest companies in the world based on its market capital, and its also part of famed FAANG stocks. FAANG is a acronym for Facebook, Apple, Amazon, Netflix and Google.
Overview of Netflix' 4th quarter 2019 earnings report
The numbers we are interested in (for the quarter):
Regional information for Netflix
The summary below shows the revenue earned for Netflix from various regions for the 4th quarter of their 2019 fiscal year (in $ thousands)
- Revenue: $5.467 billion (up from $4.186 billion from the same quarter of the previous year)
- Revenue increased by 30.6% over the last 12 months
- Cost of revenue: $3.466 billion (up from $2.733 billion for the same quarter of the previous year)
- Cost of revenue increased by 26.8% over the last 12 months
- Net income $586.970 million (up from $133.934 million for the same quarter of the previous year)
- Diluted earnings per share: $1.30 (down from $0.30 for the same quarter of the previous year)
- PE ratio of Netflix: 81
- Diluted weighted-average shares outstanding: 451.376 million (up from 451.116 million for the same quarter of the previous year)
- Cash and cash equivalents: $5.108 billion
- Cash and cash equivalents per share: $11.31
- Cash and cash equivalents makes up 3.34% of Netflix's market capital
- Cash and cash equivalents makes up 14.7% of Netflix's total assets
- Stockholders equity of Netflix: $7.582 billion
- Stockholders equity per share: $16.79
- Netflix is trading at 20.13 times its stockholders equity which is well outside the expected range of between 2 and 4 which most companies tend to trade at.
Regional information for Netflix
The summary below shows the revenue earned for Netflix from various regions for the 4th quarter of their 2019 fiscal year (in $ thousands)
- United States and Canada: $2 671 908
- Europe, Middle East and Africa: $1 562 561
- Latin America: $746 392
- Asia- Pacific: $418 121
Netflix' management commentary on the results and earnings guidance
Fellow shareholders, We had a strong finish to 2019, with Q4 revenue growing 31% year over year, bringing full year 2019 revenue to over $20 billion, while FY19 operating income rose 62% to $2.6 billion. During the quarter, we surpassed 100 million paid memberships outside of the US. Streaming entertainment is a global phenomenon and we’re working hard to build on our early progress.
Global paid net additions totaled 8.8m in Q4, on par with the 8.8m in the prior year period and ahead of our forecast of 7.6m, fueled by our broad slate of original programming and the worldwide adoption of streaming video. We generated Q4-record paid net adds in each of the EMEA, LATAM and APAC regions, while UCAN paid net adds totaled 0.55m (with 0.42m in the US) vs. 1.75m in the year ago quarter. Our low membership growth in UCAN is probably due to our recent price changes and to US competitive launches. We have seen more muted impact from competitive launches outside the US (NL, CA, AU). As always, we are working hard to improve our service to combat these factors and push net adds higher over time.
Global paid net additions totaled 8.8m in Q4, on par with the 8.8m in the prior year period and ahead of our forecast of 7.6m, fueled by our broad slate of original programming and the worldwide adoption of streaming video. We generated Q4-record paid net adds in each of the EMEA, LATAM and APAC regions, while UCAN paid net adds totaled 0.55m (with 0.42m in the US) vs. 1.75m in the year ago quarter. Our low membership growth in UCAN is probably due to our recent price changes and to US competitive launches. We have seen more muted impact from competitive launches outside the US (NL, CA, AU). As always, we are working hard to improve our service to combat these factors and push net adds higher over time.
As a reminder, the quarterly guidance we provide is our actual internal forecast at the time we report. For Q1’20, we forecast global paid net adds of 7.0m vs. 9.6m in Q1’19, which was an all-time high in quarterly paid net adds. Our Q1’20 forecast reflects the continued, slightly elevated churn levels we are seeing in the US plus an expectation for more balanced paid net adds across Q1 and Q2 this year, with seasonality more similar to 2018 than 2019. This is due in part to the timing of last year’s price changes and a strong upcoming Q2 content slate, where we’ll have some of our bigger titles like La Casa De Papel (aka Money Heist) season 4.
Great content grows engagement among our members, which we believe drives word-of-mouth, improves retention and grows paid memberships.
During December, we also launched The Witcher, which is tracking to be our biggest season one TV series ever. Through its first four weeks of release, 76m member households chose to watch this action-packed fantasy, starring Henry Cavill. As a testament to how our hit content can penetrate the global zeitgeist and influence popular culture, the show’s launch drove up sales of The Witcher books and games around the world, and spawned a viral musical hit. Our Q4 movie slate set a new bar for the variety and high quality of films we produce to appeal to our members’ many different tastes.
We released 6 Underground, from director Michael Bay and starring Ryan Reynolds, and 83m member households chose this crowd-pleasing action film through its first four weeks. The exceptional breadth and quality of our film slate was recognized as we led all studios with 24 Academy Award nominations across eight different films. The nominated feature films produced by the Netflix studio like The Irishman, Marriage Story and The Two Popes were also very popular with our members. Having launched our original film initiative just under five years ago, this is a proud achievement and a testament to the creative talent with whom we partner.
Netflix (NASDAQ: NFLX) stock price history
The image below, obtained from Google, shows the stock price history of Netflix (NASDAQ: NFLX) over the last 5 years. And it's been a exceptional time for Netflix (NASDAQ: NFLX). 5 years ago the stock was trading at around $62.50 and its currently trading at $338.11. That's a excellent return of 440.9% over the last 5 years.
The stock is however trading at a lot closer to its 52 week high of $385.99 and is far far away from its 52 week low of $252.28,which to us is a clear indication that the short term sentiment and momentum of Netflix is positive.
The stock is however trading at a lot closer to its 52 week high of $385.99 and is far far away from its 52 week low of $252.28,which to us is a clear indication that the short term sentiment and momentum of Netflix is positive.
Recent coverage of Netflix
Recent coverage of Netflix's latest results as obtained from Fool.com
Going into Netflix's (NASDAQ:NFLX) fourth-quarter update on Tuesday afternoon, questions loomed about how the company would hold up against new streaming services in the U.S., namely those from Walt Disney (NYSE:DIS) and Apple (NASDAQ:AAPL), both of which launched services during Q4. But Netflix kept growing its subscribers in its domestic market as total revenue jumped about 31% year over year. Furthermore, global subscriber additions during the quarter came in more than a million higher than management's guidance.
Netflix added a total of 550,000 paid net members in the U.S. and Canada, with 420,000 additions in the U.S. This isn't too far from management's guidance for 600,000 net paid member additions in the U.S. during the period. Investors should note that Netflix's guidance represents management's actual internal forecast and is not a lowball figure for the sake of conservatism; slight underperformance relative to guidance, therefore, arguably shouldn't alter an investment thesis for the stock.
Management had mostly brushed off the news of intensifying competition when it reported its third-quarter results in October. "The launch of these new services will be noisy," the company said in its third-quarter shareholder letter. "There may be some modest headwind to our near-term growth, and we have tried to factor that into our guidance. In the long term, though, we expect we'll continue to grow nicely given the strength of our service and the large market opportunity."
Read the full article here
Going into Netflix's (NASDAQ:NFLX) fourth-quarter update on Tuesday afternoon, questions loomed about how the company would hold up against new streaming services in the U.S., namely those from Walt Disney (NYSE:DIS) and Apple (NASDAQ:AAPL), both of which launched services during Q4. But Netflix kept growing its subscribers in its domestic market as total revenue jumped about 31% year over year. Furthermore, global subscriber additions during the quarter came in more than a million higher than management's guidance.
Netflix added a total of 550,000 paid net members in the U.S. and Canada, with 420,000 additions in the U.S. This isn't too far from management's guidance for 600,000 net paid member additions in the U.S. during the period. Investors should note that Netflix's guidance represents management's actual internal forecast and is not a lowball figure for the sake of conservatism; slight underperformance relative to guidance, therefore, arguably shouldn't alter an investment thesis for the stock.
Management had mostly brushed off the news of intensifying competition when it reported its third-quarter results in October. "The launch of these new services will be noisy," the company said in its third-quarter shareholder letter. "There may be some modest headwind to our near-term growth, and we have tried to factor that into our guidance. In the long term, though, we expect we'll continue to grow nicely given the strength of our service and the large market opportunity."
Read the full article here
Netflix (NASDAQ: NFLX) latest stock valuation
So based on the earnings report of Netflix (NASDAQ: NFLX) what do we value Netflix (NFLX) stock at? Based on the earnings report and the increased competition our valuation models sets a target (full value) price on Netflix of $254.90. (up strongly from our 3rd quarter 2019 Netflix earnings report valuation). Based on our target price (full value price) we believe the stock of Netflix is overvalued.
We usually recommend that long term fundamental or value investors look to enter a stock at least 10% below our target (full value) price which in this case is $254.90. We therefore believe a good entry point into Netflix is $229.40 or below. Since the stock of Netflix is well above this price we would not recommend buying into Netflix right now as we believe there is still a lot of hope and fairytales and butterflies built into their future earnings expectations with the group trading at a PE ratio of over 80
We usually recommend that long term fundamental or value investors look to enter a stock at least 10% below our target (full value) price which in this case is $254.90. We therefore believe a good entry point into Netflix is $229.40 or below. Since the stock of Netflix is well above this price we would not recommend buying into Netflix right now as we believe there is still a lot of hope and fairytales and butterflies built into their future earnings expectations with the group trading at a PE ratio of over 80
Next earnings release for Netflix
It is expected that Netflix will release its 1st quarter earnings report for their 2020 fiscal year in mid April 2020.