05 Mar 2020
Posted in Business Fundamentals
Netflix’s sentiments down amidst a resilient battle for subscriber growth
Netflix’s sentiments have been hit due to rising competition from Disney+ and Apple TV+, as well as slow revenue growth, says GlobalData, a leading data and analytics company.
GlobalData’s Company Filing Analytics platform, which analyzes and showcases sentiments across companies and sectors by scanning through earning transcripts and filing documents, found that Netflix’s overall sentiment score declined by 11% in the fourth quarter (Q4) of 2019 compared to Q3 2019.
Sentiments took a hit following Netflix’s decelerating quarterly revenue growth in 2019. Compared to the quarter-on-quarter (Q-o-Q) revenue growth of 8.9% in Q2 2019 and 6.5% in Q3 2019, the company had a Q4 2019 revenue growth of 4%. Netflix’s subscriber gains in the domestic streaming segment (which accounted for close to 50% of the company’s revenue) were deflated by Disney+, which gained 26 million subscribers by the end of Q4 2019.
In its domestic streaming segment, Netflix also faces severe pricing pressures. For instance, Disney+ costs US$7 a month while Apple TV+ costs US$5 a month versus US$9 a month for Netflix’s economy plan.
In spite of the slow quarterly growth in domestic subscribers and rising price pressures, Netflix has not changed its pricing strategy in its domestic streaming segment to limit the subscriber shift. However, Netflix’s rigid pricing strategy in the domestic streaming segment is causing a subscriber exodus towards alternate rivals with similar content and aggressive pricing strategies. In the Q4 earnings transcript, the company highlighted that the pricing situation is sensitive and also lowered its Q1 2020 outlook.
The slow revenue growth has also been denting investor sentiments with the average Q4 2019 share prices declining by 5% when compared to the previous quarter.
Aurojyoti Bose, Lead Analyst at GlobalData, says: “Netflix posted good results for Q4 2019 and the management is content, yet not too optimistic about future growth, as it continues to clash with Amazon Prime Video, the new Disney+ and Apple TV+ to gain subscribers.
“However, outside the US, Netflix has not seen a drastic impact from competition. Unlike the US, the company has followed a low price strategy to achieve customer traction in countries such as India, Indonesia and Malaysia, which also ensued growth in its international subscriber base.
“Netflix’s management recognizes the threat of new competition and has taken steps to fight its rivals by starting a partnership with Samsung. It would be interesting to see what other strategies the company is considering in future to mitigate the risk of subscriber loss.”