Reality Check
Netflix Inc reported third quarter results on 20th October, 2020. The noteworthy metric was missing the quarterly net subscriber addition. In the July-September period, 2.2 million paid subscribers were added; this number fell short of company’s own estimates. The market was expecting astronomical numbers, and the stock was over bought by all stretch of imagination. Netflix’s share price has been scaling new highs since people have been confined to their homes due to the pandemic.
In the first and second quarter of 2020, Netflix added 15.8m and 10.1m subscribers, respectively. These numbers were way above company’s estimate of 7m and 7.5m for the first two quarters. As per internal estimates, Netflix expects to add 6m paid net additions to the subscriber base.
Share price slides in after hours trading
At the opening bell on 20th October, Tuesday, Netflix share began trading at $528.14 and closed at $494.99 per share in after hours trading; it was trading at $298 in mid March. This $33 fall may be termed as a knee-jerk reaction or sensible profit booking. Tech stocks, especially, FB, Twitter, Apple, Alphabet (Google), and Netflix have seen record prices in the last six months.
This correction could be a sign of things to come for the tech bubble which is getting bigger with every trading session. Google stock price may see similar fate in the next few trading sessions after Department of Justice filed a suit against the search engine behemoth for abusing its dominance.
Streaming Wars
“Competition for consumers’ time and engagement remains vibrant,” Netflix said. “Linear television and other big categories of entertainment, like video games and user generated content from YouTube and TikTok are all vying for consumers’ attention and are strong drivers of screen time usage.”
Apple, Comcast, Disney and others have also taken on Netflix with streaming television services of their own. In the letter to investors, Netflix added, “We’ll continue to focus on pleasing our members and improving our service as quickly as possible so that we can be everyone’s first choice for online entertainment. For our 2021 slate, we continue to expect the number of Netflix originals launched on our service to be up year over year in each quarter of 2021 and we’re confident that we’ll have an exciting range of programming for our members, particularly relative to other entertainment service options.” While evaluating any increase in subscription rates, Netflix will take its line-up of local content into consideration.