Netflix (NASDAQ: NFLX) announces that that new paid subscription has slowed down after a strong surge in the previous two quarters this year. The shares of Netflix are down 6% after the market closes today.
Netflix reports $6.44 billion in revenue vs. $6.39 billion expected $1.74 per share earnings vs. $2.13 expected, and 2.2 million new subscribers vs. 3.3 million expected.
The media streaming company reports significant growth in new subscriptions since the beginning of the pandemic. Netflix reports 16 million new paid users in the first quarter, 10 million new paid subscribers in the second quarter, and only add 2.2 million new members in the third quarter.
The company adds a net of 28.1 million paid memberships in the nine months of 2020 vs. 27.8 million added for all 2019. Asia Pacific region is the largest contributor to new paid membership representing 46% of global net additions.
Netflix concludes that the slow down in net membership is caused by the “pull-forward effect” due to the surge of new subscribers in the last two quarters during the pandemic. Netflix expects that the net subscriber’s growth will be lower in the first half of 2021 compared to the surge in the first half of 2020.
Netflix believes that the current net subscriber’s fluctuation will not determine the long-term results as the company is still in the early adoption of media streaming. The user retention remains strong, and the engagement per member household increases.
The competition in the media streaming industry is getting crowded with newcomers plus television streaming and YouTube platform. However, Netflix is still the leader, with a total of 195 million paid members. The number is significantly higher than Disney+, with 60.5 million paid memberships and 36.3 million paid subscribers to HBO.
Netflix’s financial statement shows that the revenue continues to grow at a sustainable level with a $6.5 billion forecast in the fourth quarter. The revenue growth rate is strong, with a range of 20% – 31% growth every quarter.
The operating income continues to grow at a sustainable level, with an operating margin ranging from 8% – 20%. The global paid membership growth is also increasing at a healthy rate.
Despite concerns of slower growth, Netflix’s financials and outlook are solid. The original content creates strong differentiation with major competitors. Netflix’s platform delivers movies, series, and documentaries from different countries and cultures that are not available anywhere else.
Netflix may face delays in the new content added as the pandemic disrupts the movie and series productions. However, the company expects the number of original series will increase year over year.
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