Netflix subscriber forecast misses Wall Street estimate as market leader faces Disney

(Reuters) - Netflix Inc missed Wall Street subscriber forecasts for the first quarter Tuesday, amid pressure from lower-cost services from Walt Disney Co and Apple Inc in the streaming video wars.

The streaming giant added more paying subscribers than Wall Street expected in the fourth quarter, beating international subscriber estimates but missing estimates for U.S. subscriber growth.

Netflix shares were up 1.5% in volatile after-hours trading on Tuesday.

The company acknowledged that competitive pressure and a recent price hike impacted its U.S. business, where subscriber growth fell short of analyst estimates.

Competition had a more muted impact on its viewership in Canada, Australia and the Netherlands, the company wrote in a letter to investors.

The Disney+ and Apple TV+ streaming services both launched in the United States in November. Disney+, which is also live in Canada, Australia and New Zealand, will launch in the UK, France, Germany, Italy, Ireland, Spain, Austria and Switzerland on March 24. Apple TV+ is available in over 100 countries and regions.

Netflix's first-quarter forecast reflected the potential threat of that international expansion. The company said it expects to add 7 million subscribers globally in the first quarter, below analysts' average of 8.82 million, according to IBES data from Refinitiv.

Netflix said it added 8.76 million paid global subscribers in the fourth quarter, boosted by strong releases that included a new season of royal drama "The Crown" and two films nominated for Best Picture Oscars. It beat the 7.6 million average expectation of analysts, according to IBES data from Refinitiv - the same growth Netflix forecast for the quarter.

The Disney+ service launched in the United States and Canada for $7 per month and $13 a month for a bundle with ESPN+ and Hulu; it reached 10 million sign-ups on its first day. Apple TV+ launched Nov. 1 for $5 per month and is free for one year with the purchase of some Apple devices: its performance has been harder to define. AT&T-owner WarnerMedia’s HBO Max will cost $15 per month when it launches in May.

Netflix is available in over 190 countries; its standard U.S. plan costs $13 per month.

Netflix has had an outsized impact on the pay TV landscape, changing the way that people consume TV and film and forcing media and tech companies to shift their business models. As streaming video has grown in the United States, the market has become more competitive, pushing Netflix to look overseas for growth.

As such, the company has invested heavily in non-English language content, and this quarter began releasing revenue and subscriber numbers by region for the first time. It added 1.75 million subscribers in Asia-Pacific, its fastest-growing region, while Latin America grew by 2.04 million subscribers in the quarter.

As rivals have pulled their content off of Netflix, the company has poured money into original TV series and films. It had a $15 billion cash budget for content last year and $14.76 billion in long-term debt as of Dec. 31, 2019. “Friends” left Netflix in the United States this month and will run on HBO Max. “The Office” is leaving the service at the end of 2020 and will be available on Comcast-owned NBCUniversal’s forthcoming Peacock streaming platform next year.

“The streaming service’s massive content and marketing budget can only be justified if the company is adding more subscribers at a robust rate. If that doesn’t materialize, then its stock price will reflect that reality," wrote Haris Anwar, an analyst at investing.com.

The addition of new streaming platforms - taking more out of a household’s monthly entertainment budget - has also made it harder for Netflix to raise prices, as it did in the United States last year.

Free, advertising-supported services such as Peacock and ViacomCBS-owned Pluto TV may also limit Netflix’s pricing power, according to research from Citigroup.

Net income rose to $587 million, or $1.30 per share, in the fourth quarter from $134 million, or 30 cents per share, a year earlier.

Total revenue rose to $5.5 billion from $4.2 billion a year earlier. Analysts on average had expected $5.45 billion.

The streaming giant said it added 8.76 million paid subscribers globally compared with expectations of 7.63 million, according to IBES data from Refinitiv.

(Reporting by Neha Malara in Bengaluru and Helen Coster in New York; Editing by Arun Koyyur and Lisa Shumaker)

01/21/2020 22:59

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