Week 6: Up, Up, and Away

fallball

To my fellow Villanovans, happy fall break. I hope you are enjoying your time to relax as much as I am.

To my non-Villanovan readers, I hope you are enjoying your respective falls.

As I sit writing this blog, I have the Dodgers vs Brewers NLCS game on in the background. At the plate is Los Angeles’ Manny Machado, a formidable force. The camera cuts away to a previous at bat, highlighting a Machado homerun with the commentary, “Going, going, gone!”

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LA Dodgers’ Manny Machado

A homerun in baseball in one of the most electrifying moments, having the capacity to spark a late game rally or erase all hope of a comeback.

It could be said that Netflix hit a homerun with its third quarter earnings report this past Tuesday. Netflix has jumped 5% on the heels of $0.89 per share earnings vs $0.68 expected as well as adding just under 7 million new subscribers. Both these figures beat analysts expectations, providing solid evidence of a rebound from a shaky second quarter.

These added subscribers come from an increase of 5.87 million international subscribers. Earlier in the year, I looked into Netflix’s attempt to spread internationally and the competition they would face in the form of other streaming services (Hulu) and more traditional telecom companies (21st Century Fox). This third quarter report demonstrates how their efforts were successful, adding over 1 million more international subscribers than expected.

This 5% increase has not been able to make up Netflix’s significant losses last week, suffering amid the slight market correction that plagued all sectors and hit tech extremely hard. However, it does give hope that Netflix is still appealling to new users as well as retaining its old users. According to CNBC, CEO Reed Hastings said that, for future quarters, Netflix plans to be “a little better at forecasting” so that their estimates are closer to thair actual figures.

Before we get too excited, there are some skeptics. And if my limited market studies have taught me anything, do NOT ignore the skeptics.

KeyBanc-Capital-Markets-logo
KeyBanc Analysts have a more pessimistic view of Netflix

A MarketWatch article reports that analysts at KeyBanc do not think that investment returns will materialize soon for investors. This is due to a lack of evidence of revenue growth and accelerating profits. This is not to say that Netflix is not still profitable, but not necessarily to the extent that investors are communicating after the past quarter.

I somewhat agree with KeyBanc’s analysts. I think it is too early to celebrate Netflix’s subscriber growth, but I do think it gives promise to future opportunities and profits. I hope that Netflix continues to add users at their current rate and even accelerates, especially in the largely untapped international market.

So no, this report was not a homerun. But maybe it was a double that, in the long run, can be the spark for a string of hits that puts Team Netflix above the competition.

See you next week.

Sources:

https://www.cnbc.com/2018/10/17/netflix-added-subscribers-in-1-year-nearly-as-fast-as-hbo-in-40-years.html

https://www.cnbc.com/2018/10/16/netflix-q3-2018-earnings-and-revenue.html

https://www.marketwatch.com/story/netflix-downgraded-at-keybanc-due-to-pace-of-spend-and-length-of-time-for-a-return-2018-10-17?ns=prod/accounts-mw

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