Bank: “Netflix retention remains healthy”

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Netflix’s Q3 subscriber growth – or lack of – made headlines around the world and sent its share price down 6 per cent on October 20th in after-hours trading.

Netflix said that Covid had brought forward better subscriber growth earlier in the year and this meant that its Q3 growth (2.2 million compared to guidance expectations of 2.5 million). This slow-down in growth is also likely in the current quarter-year but today’s 195 million subscribers (up 23.2 percent y-o-y) is still likely to top 201 million by year-end.

“Consequently, Q3 revenues were only a tad above [consensus] estimates. Due to savings from limited production, operating margins jumped above the guidance (20.4 per cent vs 19.7 per cent guidance), though net profit was below street expectations. Restarting of production is expected to keep FY20E free cashflow negative (c-$2.0 billion). Management expects FY21E free cashflow to be c-$1.0 billion to break-even. Netflix guidance is for incremental 6 million paid new subscribers for Q4,” says analysts at Exane/BNPP.

But there are consequences for the state of free-to-air (FTA) broadcasters in Europe, suggests Exane/BNPP. The bank says that a proliferation of OTT suppliers is likely to see more churn for the OTT players, but will also mean a trend away from viewing FTA broadcasting.

“Regarding the European broadcasting space we see the increased competition in the SVoD space driven by the US players’ strong differentiation on content depth and marketing firepower as weighing on EU FTAs own Direct-to-Consumer plans, leaving us cautious on most European broadcasters’ SVoD plans,” says the bank.

As to Netflix’s numbers, the bank says that retention remains well “at very healthy levels, better than we [saw] a year ago. Acquisition remains strong.”

Netflix management told analysts that since the Covid lockdowns, it has completed production on over 50 productions, and expects another 150 before the year is over.

“Those productions may go a little slower than we had planned. But materially, we are back in business in production in most places of the world, including in North America that have come on slower […] we’re back to near steady state in physical production,” said Netflix.


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