Netflix Secures Portal Into China Through Deal With Baidu Unit

Streaming-video giant to show original content via licensing agreement with Chinese platform iQiyi

April 25, 2017

Netflix Inc., which has struggled to win government approval to operate in China, said it had struck a licensing deal with Chinese video-streaming platform iQiyi to show the U.S. company’s original content here.

IQiyi is a subsidiary of Baidu Inc., which made its mark as China’s most popular internet search engine and is expanding into areas as diverse as entertainment and self-driving cars.

Terms of the deal weren’t disclosed. Representatives of Netflix and iQiyi declined to comment further on the deal, which was first reported by Variety.

Netflix has been pursuing international expansion as its core U.S. market matures. China, with its rising incomes and an expanding pool of consumers of online entertainment, is regarded by companies as the industry’s Holy Grail. The country had 75 million paid subscribers of online video content in 2016, more than triple the 22 million in 2015, according to a recent report by the Beijing-based research company EntGroup.

The Los Gatos, Calif., company said this month U.S. and international subscriber growth slowed in the first quarter of the year, coming in below analysts’ expectations.

China was notably absent when Netflix rolled out its global expansion a year ago, adding 130 countries to its service map. China has been a complicated market to enter as the country’s censors often block scenes they view as objectionable and have demanded increasing control of imported internet content in recent years.

Netflix, which has been trying to find a local partner in China for more than two years, has held talks with several of the country’s major state-backed broadcast companies, including Wasu Media Holding Co. , an online-media company backed by a coalition that includes Alibaba Group Holding Ltd. Executive Chairman Jack Ma.

The first two seasons of “House of Cards,” an original Netflix series starring Kevin Spacey as scheming U.S. politician Frank Underwood, were a hit in China when the program was streamed on sohu.com.

Netflix will report its earnings for the second quarter after the market closes on Monday. Here’s what investors can expect:

Earnings: Netflix is expected to report earnings of 16 cents per share, according to analysts surveyed by FactSet. That would be a nearly 78% increase compared with the same quarter a year ago, but a 60% decline from the most recent first quarter. Netflix has beaten FactSet’s profit estimate in eight of the last 10 quarters.

Estimize, which crowdsources estimates from sell-side and buy-side analysts, hedge-fund managers, executives, academics and others, expects Netflix to report per-share earnings of 19 cents.

Revenue: Revenue for the quarter is expected to hit $2.76 billion, according to analysts tracked by FactSet. That would be up more than 31% compared with the year-earlier period, and nearly 5% from the most recent quarter. Netflix’s forecast revenue breaks down into $1.51 billion from domestic streaming, $1.15 billion from international streaming and $115 million from domestic DVD subscriptions. Netflix has missed revenue expectations in six of the last 10 quarters.

Estimize also expects revenue to hit $2.76 billion in the quarter.

Did Netflix Cash In On Its ‘Strongest Content Quarter Ever’?

The streaming video company had several hit shows, and analysts think that helped it woo more subscribers.

July 14, 2017

Wall Street thinks there are multiple reasons why Netflix is likely to announce considerable growth in its U.S. subscriber base when it reports quarterly earnings Monday. High-school drama 13 Reasons Why is probably the biggest, but it isn’t the only one.

The show, which premiered March 31, generated especially strong social-media buzz and search traffic. “We expect Netflix to call out 13 Reasons Why,” Doug Anmuth wrote this week, since it performed better in Google Trends than several other popular Netflix titles.

While the spring quarter tends to be a relatively slow one for Netflix, investors are encouraged by the fact that the company released new seasons of hit shows Orange is the New Black and House of Cards during the period. Anmuth thinks this was “perhaps Netflix’s strongest content quarter ever.”

The question, however, is how many subscribers actually sign up for Netflix just to watch new seasons of shows that have been out for five years and are arguably past their prime. Enthusiasm for Orange is the New Black and House of Cards has cooled, Jefferies analyst John Janedis recently noted.

Nonetheless, Wall Street has high hopes for Netflix, projecting that the company added 631,000 net subscribers in the U.S. during the quarter, according to FactSet. The company only added 162,000 a year ago.

On the international side, investors are encouraged by growth prospects in Europe and Latin America. Wall Street estimates that the company added 2.6 million net members overseas, up 70% from a year prior. In general, Netflix shares tend to rise and fall based on the company’s ability to add new subscribers.

Overall, analysts are calling for $2.7 billion in revenue and 16 cents a share in earnings.

Netflix Makes Its First Acquisition, Comic-Book Producer Millarworld

Aug. 7, 2017

Netflix Inc. has acquired comic-book publisher Millarworld, best known for characters and stories such as “Kick-Ass” and “Old Man Logan,” as part of its broader strategy to create and own more original content.

The deal is Netflix’s first acquisition. Financial terms weren’t disclosed, but a person familiar with the matter said the price was in the $50 million to $100 million range.

While it’s a small outlay for a company with a $78 billion market capitalization and $1.9 billion in cash, it’s a notable shift for the streaming giant. Netflix has evolved from purely licensing TV shows and movies from other studios and networks, to funding original content, to now owning intellectual property and production. By developing more of its own content and holding intellectual property rights, Netflix can decrease its reliance on the outcome of contract negotiations, better control costs and dabble in selling consumer products.

The purchase comes as its competitors—particularly traditional broadcast and cable networks—are also increasingly seeking to own as much of their content as possible.

Founded by Mark Millar, Millarworld has content that ranges from superheroes to science fiction and fantasy. Other well-known properties include “Kingsman,” “Jupiter’s Circle,” “Reborn” and “Empress.” “Kick-Ass,” “Kingsman,” and another Millarworld property “Wanted” have been made into movies and combined have grossed close to $1 billion in world-wide box-office receipts. The “Kick-Ass” and “Kingsman” properties, though, aren’t part of the sale because of existing Hollywood deals, Mr. Millar wrote in a letter to fans on his company’s website.

In unveiling the purchase, Netflix Chief Content Officer Ted Sarandos said Mr. Millar is “as close as you can get to a modern day Stan Lee,” referring to the Marvel Comics legend.

Before starting his own company, Mr. Millar was at Marvel for nearly a decade and was involved in the development of the first “Avengers” movie as well as “Captain America: Civil War” and “Logan.”

Talks between Netflix and Millarworld started late last year, according to Mr. Millar’s letter. The Netflix team, he said, “felt like people who would help us take Millarworld’s characters and turn them into global powerhouses.”

For Netflix, the acquisition is another bet on comic book-driven content to drive sign-ups and help retain existing subscribers. It already has a deal with Walt Disney Co.’s Marvel that has resulted in the series “Daredevil,” Jessica Jones” and “Luke Cage.”

While Netflix has been an eager buyer of content from outside suppliers, many studios are starting to question the wisdom of selling to Netflix at the same time they are looking to create or enhance their own digital platforms and direct-to-consumer streaming services.

Netflix said the purchase is a “natural progression” of its desire to acquire more intellectual property. Raymond James analyst Justin Patterson said he expects Netflix to pursue more acquisitions, primarily of relatively low-price small companies.

Initially, Netflix relied primarily on outside studios and production companies for its original content such as “House of Cards” and “Orange is the New Black.” Now Netflix has its own infrastructure and is making more of its content including last year’s surprise success “Stranger Things.”

Netflix Signs ‘Scandal’ Creator Shonda Rhimes Away from ABC, as Battle for Talent Escalates

Prolific producer will create new shows for streaming service, which faces growing competition from Amazon, Disney

Aug. 14, 2017 12:01 a.m. ET

Netflix Inc. has recruited prolific television producer Shonda Rhimes, the creator of ABC hits such as “Scandal” and “Grey’s Anatomy,” the clearest sign yet of an arms race for talent between new and old entertainment industry giants.

Under the terms of the multiyear exclusive agreement, Netflix said Ms. Rhimes, whose credits also include “How to Get Away with Murder,” would develop new shows for the streaming service. She will move her production company ShondaLand from its current base at Walt Disney Co.’s ABC Studios to Netflix.

Ms. Rhimes’s signing is part of Netflix’s effort to create and own more of its content and become less reliant on Hollywood studios and production companies to supply programming. It also is the latest twist in a battle between Disney and Netflix for entertainment-industry supremacy: Just last week, Disney announced it wasn’t renewing a deal that provided many of its movies to Netflix to stream after their theatrical run, and was launching its own streaming service.

Signing up a superstar “showrunner” like Ms. Rhimes — whose work for ABC has generated over $2 billion in revenue from advertising, rerun sales and international licensing, according to people familiar with the matter — underscores that Netflix intends to poach the best talent from traditional studios, whether in front of or behind the camera.

In the past week alone, Netflix announced signing movie directors Joel and Ethan Coen to make a Western series and lured former late-night star David Letterman out of retirement to make new shows. It also acquired the comic book publisher Millarworld and intends to use its characters to create new franchises.

“We have continued to move up the food chain in terms of getting into the creation of content earlier,” Netflix Chief Content Officer Ted Sarandos said in an interview.

When Netflix first entered the original programming arena, it relied mostly on outside suppliers for shows such as “House of Cards” and “Orange is the New Black.” More recent shows including last year’s surprise success “Stranger Things” have been wholly owned by Netflix.

In an interview, Ms. Rhimes said she is going to Netflix to get “new fresh creative energy.” Unlike broadcast television, where networks want shows to run at least five years and require anywhere from 18 to 24 episodes per season, there is more flexibility for creators at platforms such as Netflix or even Time Warner Inc.’s HBO to do fewer episodes.

“I’m thrilled by the idea of a world where I’m not caught in the necessary grind of network television,” Ms. Rhimes said. In addition, since Netflix doesn’t have advertising, Ms. Rhimes doesn’t need to worry about language and nudity. Netflix, she said, provides “larger creative freedom.”

Other producers echo Ms. Rhimes’s desire to be free of the demands of broadcast television. David E. Kelley, whose broadcast resume includes the hits “The Practice” and “Ally McBeal,” has more recently produced for HBO and Amazon Prime and said he has no desire to go back to a broadcast or basic cable network.

Ms. Rhimes’s departure is a significant loss for Disney and ABC, which she has called home for 15 years. Her pact with ABC Studios had almost a year left on it, but the company agreed to release her early.

Ms. Rhimes will continue to be involved in the shows still running on ABC, as well as “For The People,” a new legal drama debuting this upcoming season, and a “Grey’s Anatomy” spinoff in the works. But Netflix will have the rights to new programs she creates.

Terms of Ms. Rhimes’s deal with Netflix weren’t disclosed, but the streaming service has a reputation for deep pockets. Her production deal with ABC is worth more than $10 million a year to produce shows, people familiar with the pact said. On top of that, she is a profit participant in her shows, meaning she gets a cut of rerun and international sales.

Ms. Rhimes’s longtime producing partner Betsy Beers will also go to Netflix, along with approximately 30 ShondaLand employees. The writers on her ABC shows, however, remain under contract with ABC Studios.

Netflix’s heavy spending continues to raise eyebrows in Hollywood. It often doubles salaries to lure talent away from traditional players. The company’s spending on new and acquired programs is expected to be more than $6 billion this year, compared with $5 billion a year ago. That is more than twice what HBO spends and five times as much as 21st Century Fox’s FX or CBS Corp.’s Showtime.

After a sluggish start to the trading day, shares of Netflix NFLX moved about 2.2% higher in the early afternoon hours on Wednesday. The midday pop seems to be a result of the news that T-Mobile TMUS is including a free Netflix subscription in its new family plans.

According to a company press release, “T-Mobile One” family plans with two or more lines now include a complimentary Netflix membership. T-Mobile One customers will be able to activate their Netflix accounts online, in-store, or over the phone starting on September 12.

Netflix Raises U.S. Prices for Many New and Current Members

The video-streaming company is facing increased competition from a number of upstart firms

Oct. 5, 2017

Netflix Inc. plans to raise prices for its video-streaming services in a bid to boost its revenue amid rising content costs.

Netflix is facing increased competition from a number of upstart companies as it works to grow its subscriber base and secure its position in a battle seen by many as the future of video.

Over the next several months, Netflix will increase prices across its mid-level and high-end plans in the U.S. for both long-time and new subscribers. Netflix is keeping prices the same for its entry-level plan.

In August, Walt Disney Co. announced it would launch streaming services for both its Disney entertainment and ESPN sports content. The new Disney-branded service is to carry movies Disney releases starting in 2019.

Netflix is raising the price of its mid-level “standard” plan by one dollar to $10.99 and raising the price of its “premium” plan by two dollars to $13.99. The company’s “basic” plan will continue to cost $7.99.

In 2016, Netflix’s average monthly revenue per subscriber was $9.21, less than the current cost of the second-tier, $9.99 monthly plan.

Netflix earnings: Why higher subscription prices lead to more shows like ‘Stranger Things’

Oct. 14, 2017

Netflix Inc. recently raised the cost of two of its subscriptions, in part, to help fuel the company’s commitment to produce and own as many high-quality movies and TV shows as monetarily possible.

Netflix’s goal has been to produce its own content and own it outright, rather than license it from networks and studios. If Netflix NFLX, +1.85% owns all the rights to the content on its platform, it can make more money off of it.

“Look, when we produce an amazing show like ‘Stranger Things,’ that’s a lot of capital up front and then you get a payout over many years,” Chief Executive Reed Hastings said during the company’s most recent quarterly earnings interview. “Seeing the positive returns on that for the business as a whole is what makes us comfortable that we should continue to invest and integrate to basically self-develop many more properties.”

This, however, comes at a much steeper cost. Ted Sarandos, Netflix’s chief content officer, said recently that the streaming service will likely have to bump up its content budget to $7 billion in 2018, up from $6 billion this year and $5 billion in 2016.

Netflix is already spending more than its competitors. But in order to gain more control over its content, Netflix has increased subscription costs and taken on billions of dollars in debt.

Signalling its evolving content approach, Netflix made its first-ever acquisition in August, buying comic-book publisher Millarworld. The company then signed TV writer and producer Shonda Rhimes to an exclusive content deal, luring her away from Walt Disney Co.’s DIS, +0.46% ABC network.

Netflix has a deal to bring former late-night host David Letterman back to TV, and the company has outbid rivals for a number of future projects, including a musical series from Oscar-winning “La La Land” director Damien Chazelle.

All of this comes while major media companies have begun rethinking their business of licensing content to Netflix. Once a necessary evil to keep cash flowing in, licensing has turned detrimental to some. Disney has said it is ending its partnership with Netflix in favor of launching its own streaming service.

Netflix will report earnings for the third quarter after the market closes on Monday, Oct. 16. Here’s what investors can expect:

EARNINGS: Netflix is expected to report earnings of 32 cents per share, according to analysts surveyed by FactSet. That would be roughly a 167% increase compared with the same quarter a year ago and up more than 113% from the most recent second quarter. Netflix has beaten FactSet’s consensus on earnings in seven of the past 10 quarters.

Estimize, which crowdsources estimates from sell-side and buy-side analysts, hedge-fund managers, executives, academics and others, expects Netflix to report per-share earnings of 33 cents.

REVENUE: Revenue is expected to be $2.97 billion for the quarter, according to analysts tracked by FactSet. That would be a nearly 30% improvement compared with the same quarter last year and an increase of almost 7% compared with the most recent quarter. Analysts’ revenue expectations break down to $1.55 billion from domestic streaming, $1.31 from streaming overseas and $110 million from its domestic DVD subscriptions. Netflix has missed FactSet’s revenue consensus in six of the past 10 quarters.

Estimize expects Netflix to report revenue of $2.98 billion.


As usual, the focus of Netflix’s earnings report will likely be on the streaming service’s subscriber numbers and any commentary around how the price increase may impact future growth.

BTIG analyst Rich Greenfield wrote in a blog post that he expects subscriber growth will slow in 2018 due to the price increase and then pick back up in 2019.

The timing of the price increase is also benefited by the belief that Netflix has had a strong third quarter for subscriber growth. Analysts have said they expect Netflix to add more subscribers in the third quarter than previously thought.

Netflix might add more subscribers than expected in the third quarter

Oct. 4, 2017

Netflix shares were up nearly 4% on Wednesday, after UBS analyst Doug Mitchelson raised his 12-month price target on the company to $225 from $190, saying analysis suggests that the streaming giant’s subscriber growth will be more than previously expected.

Mitchelson said he expects the company’s second-quarter growth momentum to continue through the third quarter. He forecasts Netflix will report domestic net adds of 850,000 and international adds of 3.95 million.

The FactSet consensus for domestic subscriber additions is 796,000, and for international adds is 3.64 million.

Piper Jaffray analyst Michael Olson also put out a note on Wednesday suggesting upside for international and domestic subscriber adds in the third quarter. Olson reiterated his overweight rating and maintained a $215 price target.

Netflix Chief Content Officer Ted Sarandos confirmed at a Vanity Fair event on Tuesday that the company is likely to increase its content spending to $7 billion next year. That’s up from $6 billion this year and $5 billion in 2016.

While Netflix spends far more than its competitors, its original content investments have been a major driver of subscriber growth.

“We believe Netflix’s original content has played a crucial role in driving the company’s exceptional subscriber growth,” Mitchelson wrote. “Subscriber growth has historically been the single most important metric that influences Netflix’s share price, and while the market expects continued strong global subscriber growth for the foreseeable future, our forecasts are above consensus.”

Mitchelson said that Netflix’s original content and scale is part of the reason the streamer will likely remain the leader in the space as competition increases.

Netflix Earnings Preview: No Big Hits, No Problem?

Analysts are expecting another quarter of solid subscriber gains for Netflix, even though the latest quarter didn’t feature any major hits.

Oct. 13, 2017

Netflix stunned Wall Street with a big quarter of subscriber gains three months ago, and investors might get a repeat performance when the company reports its latest quarterly earnings on Monday, October 16.

Analysts are expecting another strong wave of subscriber growth for the most recent quarter, with consensus forecasts calling for 809 million net new domestic subscribers and 3.7 million net new international subscribers. Both are a bit below last quarter’s numbers, but significantly above last year’s.

Netflix had a decent slate of new programming in the last quarter, though likely not as strong as the one from the quarter before, when Netflix rode the 13 Reasons Why wave and benefitted from new seasons of Unbreakable Kimmy Schmidt and House of Cards. Investors will be looking to see whether third-quarter programming, such as a new season of Narcos and the premiere of Ozark, was enough to spark big membership gains -- or if individual hits matter less now that Netflix has built up such a comprehensive library.

“We continue to believe that Netflix’s content spend is the most important driver of incremental subscriber growth,” writes Goldman Sachs analyst Heath Terry. He adds that “from both a breadth and quality perspective, the company’s content slate is well-positioned to drive subscriber growth” in the second half of the year.

Terry predicts that the company added 1.1 million new streaming members in the U.S. and 4.3 million internationally during the third quarter, both above Wall Street’s consensus estimates.

Netflix, Inc. is slated to release its fourth-quarter earnings report next week, and bulls and bears seem to agree that the results will turn out to be strong. However, where they disagree on Netflix stock is the implications of the company’s cash burn, which is funding content acquisition. Consensus estimates for Netflix Q4 2017 earnings stand at 41 cents per share on $3.28 billion in revenue. The company guided for about 41 cents per share in earnings on $3.27 billion in revenue.

In a note to investors on Tuesday night, GBH Insights analyst Daniel Ives said he increased his price target for Netflix stock from 235 to $255 per share and maintained his Highly Attractive rating. He believes the streaming firm beat estimates for subscriber adds during the fourth quarter despite the price increase as international subscriber adds continues to drive growth.

He pegs Netflix’s total subscriber adds at 7 million for the fourth quarter based on his surveys, although he’s currently only estimating 6.3 million, which is in line with management’s guidance. They guided for 1.25 million domestic subscriber adds and 5.05 million international subscriber adds. The company added 5.3 million subscribers in the third quarter.

Ives noted that the competitive landscape is changing, especially with the combination of Walt Disney and Fox’s entertainment assets. He warned that Disney is a potential threat and set for a battle in 2019. However, he feels that Netflix is in a “unique position of strength” as it grows its content “tentacles” over the next 12 or 18 months.

He’s bullish on Netflix stock because he believes that the firm’s “competitive moat, franchise appeal, ability to increase international streaming customers through 2020, and original content build out will translate into robust profitability and growth” as the next phase of that growth plays out this year.

He continues to believe that content enables Netflix to rule, noting that the company guided for content spend to reach $7 billion to $8 billion this year, an increase of about $1 billion year over year. Company management said on the third-quarter earnings call that they expect about one-quarter of the content spend to be on original content in 2017, but their long-term goal is to reach 50% by 2020.

Ives also said that international growth remains at the center of focus, and he estimates Netflix’s total addressable market at more than 700 million subscribers internationally by 2020. He expects the firm to reach between 90 million and 100 million international subscribers by then.

Netflix shares to surge on big international subscriber gains, analyst predicts

Jan. 19, 2018

Netflix's growth in international markets and its large investment in content will boost its shares, according to one Wall Street firm.

KeyBanc Capital Markets reiterated its overweight rating on Netflix shares, predicting strong subscriber numbers for the company this year.

"We see Netflix as the global leader in subscription video in the internet era and continue to recommend owning Netflix," analyst Andy Hargreaves wrote in a note to clients Thursday. "Updated broadband household estimates drive international subscriber expectations higher. … We expect solid 4Q results and see the potential for upside to subscriber estimates through 2018."

Hargreaves raised his price target to $270 from $230 for Netflix shares, representing 23 percent upside to Thursday's close.

The analyst noted a recent report from the International Telecommunication Union that revealed broadband internet access was rising worldwide faster than expected. That makes Netflix's potential market bigger and "prompts a corresponding increase to our estimates for Netflix's international subscribers in 2018 and beyond," Hargreaves wrote.

As a result, he increased his 2018 global net subscriber forecast for Netflix to 20.6 million from 19.3 million.

Hargreaves said Netflix's large scale and content library will enable the company to beat its competition and produce subscriber growth and profitability "well ahead of current expectations."

Netflix 'can be shorted back to $300,' says well-known investor Andrew Left

Published 39 Mins Ago

Short-seller Andrew Left, who's successfully bet against stocks like Valeant Pharmaceuticals, tweeted a negative comment against one of the country's favorite stocks, Netflix.



Netflix shares dropped 2 percent following the tweet.

The company said in January it plans to spend $7.5 billion to $8 billion for content in 2018.

Netflix still has plenty of fans. One Wall Street analyst believes Netflix's original content scale is a big competitive advantage.

"We believe Netflix remains in a unique position of strength to grow its content and distribution tentacles over the next 12 to 18 months and thus further build out its massive content and streaming footprint," GBH Insights' Daniel Ives wrote in a note to clients Friday.

Ives reiterated his "highly attractive" rating for Netflix shares.

And the company's shares are crushing the market. Its stock is up 73 percent year-to-date through Friday versus the S&P 500's 4 percent gain. Netflix is the best performer in the entire S&P 500 so far this year.

Netflix and Andrew Left did not immediately respond to requests for comment.

More than 50 companies Citron Research has targeted, including Amedisys and eUniverse, have become the subjects of regulatory action, according to its website.

This is nuts, when does Netflix crash?

Friday's 5 per cent jump took Netflix shares to a fresh all-time high, to value the much loved streaming company at $144bn, two-thirds more than at the start of the year.

The people proved wrong are the doubters, those who like Barrons thought its valuation was ridiculous all the way back in August, about $160 ago.

Today, the numbers represent boundless optimism: a dozen times the $12bn of revenues reported last year, 120 times the profits it is expected to generate in this one. Fast forward, and estimates from analysts prepared to put a finger in the air for 2021 average out to forecast revenues of $27bn.

Are they, and the market, wrong?

Maybe it would be easier to share that confidence if Reed Hastings submitted to the sort of quarterly conference call suffered by less exalted chief executives, where questions from the crowd are allowed. The company prefers to pre-record polite conversation with chosen analysts.

It might be easier to believe in the growth story if 48m American households weren't already signed up for the delights of Stranger Things, and marketing spend wasn't growing faster than sales. It will jump to $2bn this year, from $1.3bn in 2017, which suggests winning customers is getting harder even if, like Netflix, we believe 700m households around the world are potential customers.

Buying into the dream would be easier if the company weren't also competing with Amazon, HBO and, in the not too distant future, Disney.

Spending of $8bn on content is planned for 2018. It would be easier to believe such costs were sustainable if the group wasn't funding itself through an accumulation of debt. That borrowing may be the part the market has overlooked, or even got wrong, but it makes Netflix the epitome of the boom we now enjoy.

The company has been burning cash for years, whether we judge it on operating cash flow or free cash flow. Netflix had to find $0.5bn every quarter last year, on the latter basis.

It borrows in the bond market to fund such spending, accumulating $6.5bn in debt, and likes to talk up a ratio of debt-to-market capitalisation as if it measures financial health rather than the weight of fairy dust sprinkled on the stock.

The debt is rated junk, four notches below investment grade. Were credit markets to close, as they periodically do to weaker borrowers in moments of strife, Nextflix would be shut out.

It has $2.8bn of cash on hand, and another $0.5bn credit line, so it could wait out any reluctance by investors to lend. Maturities are evenly spread into the future.

There's a circularity to the confidence game though. On the way up free spending on TV stars, writers, and producers is treated like investment. Stock market fans buy into the story of conquest, while debt investors and rating agencies tell themselves subscriber growth will eventually take care of the lack of cash.

A broader market upset could break that spell. Forced to preserve cash, prompting a slowdown in the pace of growth, and investors might focus more on the burn rate and the company's substantial content liabilities. The group has $7.5bn of these on the balance sheet, and another $10bn of such commitments off it.

In all, contractual commitments come to $28bn, according to this table in the recent 10-K filing:



On top of that are another $3bn to $5bn of estimated commitments for unknown titles in the next three years, for instance “traditional film output deals, or certain TV series license agreements where the number of seasons to be aired is unknown”. Those costs are largely expected to fall due in 2019 and 2020.

Of course, much of these obligations will come under operating costs, and Netflix can reasonably point to large content obligations elsewhere. At the end of last year Disney listed $48bn of commitments, almost all sports related for ESPN, out of $92bn of total commitments.

Set against their respective valuations, Netflix's obligations don't look so bad. With net debt it has an enterprise value of $147bn, to Disney's $182bn.

Traditionalists, however, might prefer some harder numbers. The Mouse empire took in $55bn in sales last year, and produced $9bn of free cash flow.

Focus on the Disney valuation, however, because it gets at the question of what Netflix investors are playing for.

Imagine in a decade Netflix has grown such that it has $55bn in revenues. Also imagine it can grow subscription fees as if they were for a college education, even though it will compete against Amazon, iTunes, Spotify and whatever else comes along for entertainment spend. If the average household were to pay $15 per month, up from $9.43 today, Netflix will need 305m paying households to get there.

It could, sure. We can also argue about details of business structures, predictability of subscriptions and whether Netflix will still be growing.

Yet, if it does everything right from here, what is the upside for enthusiastic shareholders?

A decade of incredible growth would take Netflix to something like the size, heft and cultural influence of Disney today, which the market thinks is only about a quarter more valuable than the TV-streaming trailblazer.

Those feel like the wrong odds.

Netflix earnings: Another ‘beautiful quarter,’ or are subscriber expectations too high?

Apr 15, 2018

In the first quarter, analysts model the company adding 5 million new international subscribers and 1.5 million U.S. subscribers, according to FactSet, which would add up to more than Netflix’s guidance of 6.35 million overall additions. In the same period last year, Netflix added 3.5 million international subscribers and 1.4 million U.S. members.; before Netflix’s blowout fourth quarter and first-quarter forecast, analysts were expecting fewer than 5 million new subscribers.

In a note to clients this week, Cowen & Co. analyst John Blackledge pointed to the weaker-than-expected Olympic TV ratings as potentially helping, or at least not hurting, subscriber growth. Blackledge rates Netflix a buy with a $325 price target.

Earnings: Analysts on average model Netflix earnings of 63 cents a share and the company has issued guidance for the same per-share figure, according to FactSet. Contributors to Estimize, which crowdsources estimates from analysts, fund managers and academics, predict earnings of 65 cents a share, on average.

Revenue: In the first quarter, analysts polled by FactSet expect sales of $3.69 billion, which will be split nearly evenly between U.S. streaming of $1.8 billion and international streaming of $1.77 billion; analysts predict DVD-by-mail revenue of $99 million. Estimize contributors forecast revenue of $3.69 billion.

Netflix missed its subscriber addition projections for the first time in five quarters, leading shares to tumble more than 9 percent.

The company reported second-quarter earnings after the market closed on Monday. Despite beating estimates on earnings, Netflix posted a huge miss on subscriber additions. The company added 5.15 million subscribers, about one million less than forecast. Domestic additions were only a little more than half than projected, while it also only added 4.5 million subscribers internationally.

Netflix reported:

• Revenue: $3.91 billion vs. $3.94 billion estimated, according to a Thomson Reuters consensus estimate.
• Domestic subscriber additions: 700,000 vs. 1.23 million subscribers estimated, per FactSet and Street Account
• International subscriber additions: 4.5 million subscribers vs. 5.11 million subscribers estimated, per FactSet and Street Account
• Earnings per share (EPS): 85 cents (including $85 million in non-cash unrealized gain)

Some analysts were worried the company could not sustain its share price growth, which is over 100 percent year-to-date. They also raised concerns as competitors like Amazon ramp up their streaming efforts, while others like Disney and AT&T are prepared to invest in more digital content. Netflix is expected to spend up to $8 billion this year on 700 original series.

Netflix also issued a weaker guidance for the third quarter than expected, saying it is expecting to add 5 million subscribers total compared to an analyst estimate of more than 6 million. It is projecting to add 650,000 in the U.S. and 4.35 million internationally.

Netflix Reports Weaker-Than-Expected Number of New Subscribers

Video site blamed faulty internal forecasting, not business reasons like price increases

July 16, 2018 4:18 p.m. ET

Netflix Inc. missed its own forecasts by more than a million subscribers in the second quarter, a sign that the streaming-video site’s strong momentum may be slowing.

The company added 670,000 streaming customers in the U.S., below its guidance of 1.2 million subscribers, and it added 4.47 million international customers, short of its guidance of 5 million.

Netflix blamed its subscriber miss on faulty internal forecasting. The company has had such problems in past quarters, causing gyrations in its share price following quarterly results. Notably, the company didn’t say that the miss was due to business reasons like price increases.

Shares of Netflix fell 13% to $347.51 in after-hours trading.

The company has been investing heavily in its content to lure and keep subscribers. Netflix reiterated Monday that it expects to book content expenses of up to $8 billion this year. Analysts estimate it will spend up to $4 billion more on shows and movies this year that will be released at some point in the future, bringing its total cash spend on content to some $12 billion, dwarfing rivals like Amazon.com Inc. and HBO.

For the second quarter, Netflix reported a profit of $384.3 million, or 85 cents a share, up from $65.6 million, or 15 cents a share, a year earlier.

Revenue jumped 40% to $3.91 billion.

Analysts polled by Thomson Reuters had forecast earnings of 79 cents a share on $3.94 billion in revenue.