Netflix Expects Subscriber Growth to Slow

Despite the subscriber numbers beating forecasts for the most recent quarter, Morningstar analysts think the streaming firm is still overvalued 

Neil Macker 17 April, 2019 | 8:36AM
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Netflix (NFLX) started 2019 with stronger-than-expected subscriber growth as the firm continues to benefit from global expansion. Despite the subscriber numbers beating forecasts, revenue came in line with our projection. The free cash flow loss for the quarter hit $460 million, up sharply from a loss of $287 million a year ago. Management raised its 2019 free cash flow loss target to $3.5 billion, up from the previous target of $3 billion. We retain our narrow moat rating, which means the company has a slim competitive advantage, and fair value estimate of $135, against a current price of nearly $360.

Revenue of $4.5 billion is in line with our estimate and consensus. Netflix posted stronger-than-expected subscriber growth in the international segment – 7.9 million net adds versus guidance of 7.3 million – and in the US – 1.7 million net adds versus guidance of 1.6 million. Netflix continues to expand its streaming base, ending the quarter with more than 149 million global paid subscribers, up from 119 million a year ago. Despite strong growth in quarter, management provided very weak subscriber guidance for the second quarter of 0.3 million net adds in the US and 4.7 million internationally. We note the US guidance implies the firm will post its second-lowest net add quarter since the start of 2012. This guidance reinforces our belief that adding the marginal subscriber will become increasingly hard in the US for Netflix due in part to competition, particularly after Disney+ launches in November at $6.99 per month.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Netflix Inc616.47 USD0.00Rating

About Author

Neil Macker  is a senior analyst, Morningstar Inc