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Netflix offers gloomy outlook for 2020 despite strong end to 2019

Despite beating expectations for earnings and subscriber growth in its fourth quarter, the streaming giant is expecting a slowdown in new users as competitor platforms begin to eat into its market share

Netflix - Netflix offers gloomy outlook for 2020 despite 2019 revenue bump

Streaming giant Netflix Inc (NASDAQ:NFLX) has raised questions around its continued dominance of the sector after it offered a weak 2020 outlook despite a strong end to last year.

In its fourth quarter results, released after the close on Tuesday, the company reported that revenue in the period had grown 30% year-on-year to US$5.47bn, ahead of analyst expectations, while earnings per share came in at US$1.30 compared to predictions of US$0.53.

READ: Netflix shares recover after third quarter subscriber growth tops expectations

The company also managed to add 8.76mln new subscribers in the quarter, well above its target of 7.6mln, thanks to a boost from new releases such as The Witcher and season 3 of The Crown.

However, one area of weakness was the firm’s US business, which undershot expectations by adding 420,000 new subscribers for the quarter, below its target of 620,000.

The miss was widely attributed to the launch of a number of competitors in the period, notably Walt Disney Co’s (NYSE:DIS) Disney+ and Apple Inc’s (NASDAQ:AAPL) Apple TV+ services.

Concerns around the company’s continued growth were also raised in its guidance for the first quarter of 2020, where it is expecting to add 7mln new subscribers compared to around 8mln in the same period last year.

“For the last few years Netflix, along with Amazon Prime have arguably had the online streaming market more or less to themselves, however the arrival of Disney and Apple to the party in the last three months has the potential to change the game quite significantly over the next few years”, said CMC Market’s Michael Hewson.

Meanwhile, Hargreaves Lansdown analyst Sophie Lund-Yates said international subscriber growth will now be “crucial” for Netflix going forward as the slowdown in US growth showed it was “running out of room” in its domestic market.

However, while the churn levels in the US were “slightly concerning”, Lund-Yates said Netflix’s viewing per membership had actually increased, suggesting that its existing customers were “liking what’s being put in front of them”.

“Netflix has a head start on those new to the streaming game, and for now it looks like it’s holding onto that lead”, Lund-Yates said, although she added that if subscriber growth started to slow the firm’s debt pile, which it uses to fund its content splurges, could become more of a cause for concern.

Netflix shares were 1.8% higher at US$344 in pre-market trading in New York on Wednesday.

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NASDAQ:NFLX
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