Weak Netflix forecast signals potential streaming slowdown

17 Apr 2019

Netflix on a computer screen. Image: bernardojbp/Depositphotos

Just as Walt Disney and Apple enter the fray, investors are spooked by less-than-optimistic outlook by industry pioneer.

Shares in Netflix fell 1pc in overnight trading after the company gave a weak forecast yesterday (16 April), predicting it would pick up fewer streaming subscribers in Q2.

At first glance Netflix is firing on all cylinders. The company reported strong Q1 figures with revenues coming in higher than Wall Street expectations at $4.52bn, up 22pc year on year.

‘We don’t anticipate that these new entrants will materially affect our growth’

It also revealed that net subscriptions grew 16pc year on year by 9.6m. The company now has 155m total subscribers globally and accounts for nearly 30pc of global streaming subscriptions.

Average revenue per user declined by 2pc as the company said it is tracking some “modest short-term churn effect” from price increases in the US, Brazil, Mexico and parts of Europe.

“We’re looking forward to a strong slate of global content in the second half of the year, including new seasons of some of our biggest series, Stranger Things (4 July), 13 Reasons Why, Orange is the New Black, The Crown and La Casa de Papel (aka Money Heist) as well as big films like Michael Bay’s Six Underground and Martin Scorsese’s The Irishman, and expect another year of record annual paid net adds in 2019,” Netflix said in a letter to shareholders.

Scary scene ahead?

However, just as the streaming market heats up with rivals Walt Disney and Apple revealing new platforms, Netflix has predicted that it will pick up 5m new subscribers in the second quarter (April to June), below the 5.48m industry consensus and no doubt making investors nervous.

The streaming space is indeed heating up, with around 1bn people across the planet already subscribing to services from Netflix, Hulu, Amazon Prime Video and multiple digital pay TV services.

Netflix seemed to shrug off concerns and intimated that competition will only make it sharpen its game.

“We don’t anticipate that these new entrants will materially affect our growth because the transition from linear to on-demand entertainment is so massive and because of the differing nature of our content offerings,” the company told investors.

“We believe we’ll all continue to grow as we each invest more in content and improve our service and as consumers continue to migrate away from linear viewing,” Netflix said, relating how it was similar to how US cable networks collectively grew for years as viewing shifted from broadcast networks during the 1980s and 1990s.

“We believe there is vast demand for watching great TV and movies and Netflix only satisfies a small portion of that demand. Last quarter, we talked about how our streaming hours in the US (our most mature market) on TV still only represents roughly 10pc of total TV usage. We are much smaller and have even more room to grow in other countries and on other devices like mobile. For instance, Sandvine estimates our share of global downstream mobile internet traffic is about 2pc.”

So, despite investor jitters, Netflix appears to be satisfied that there is still plenty of room for growth.

The company also revealed that chief marketing officer Kelly Bennett will be retiring from the company after a seven-year run.

“During this time, Kelly was a key contributor to the transformation of Netflix from a primarily domestic service with only second-run content to a global service launching an unprecedented amount of original programming, and we thank Kelly for his hard work.”

Netflix on a computer screen. Image: bernardojbp/Depositphotos

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years