Netflix executives see continued growth for streaming video and little real competition even as media companies jump into the direct-to-consumer market.
Wall Street cheered Netflix’s third-quarter subscriber growth figures. In what has been a volatile market lately, Netflix gives them a stock they think they can count on to continue to rise.
On its post-earnings video, Netflix CEO Reed Hastings downplayed the third-quarter streaming figures.
“I think we’re getting a little better on the forecasting in particular the evolution to paid net ads,” Hasting said.
He said the company is focusing on paid subscribers and that free trials tend to create noise.
“I'm afraid the Q2, Q3 story is probably mostly an issue of forecasting as opposed to anything changing in the business,” he said.
But Hastings was bullish on the future of streaming.
In response to a question about the company getting into other businesses, Hasting said: “There is so much growth ahead that’s possible in streaming video entertainment. So we're just going to focus on that for a very long time. Unfortunately lots of other companies are also focusing on that, but that's going to make it exciting for us for the next few years, great for consumers, incredible for producers.”
While Disney, AT&T and YouTube are lining up as competitors, “we don't focus that much in any one because no one seems to affect us that much. What affects us is can we produce the best content the world's ever seen? Can we get people excited about that content? Can we serve it up in ways that make it really fun and easy, again focusing on our fundamentals,” Hastings said.
“Someday there will have to be competition for wallet share, we're not naive about that, but it seems very far off from everything we've seen. So – and we're continuing to work with many of those firms where it makes sense to for both of us and it's creating a big and vibrant industry,” said.
The onset of competition is making relationships with some program suppliers more complicated for Netflix.
“There are conflicts within their companies of what they want to sell, when they want to sell, or what Windows that would allow for. They allow flexibility to offer their own services, which is something we foresaw years ago when we started doing original programming,” said chief content officer Ted Sarandos.
“But in the meantime, I think that they are the studios and who are always have been somewhat of potential competitors have to look at those things today and say what's the best way to get return on investment for creating great content. And so in some cases it's going to be launching it through their own direct-to-consumer initiatives, in other cases it's going to be selling to Netflix which has proved to be very positive for them for many years.” Sarandos said.
Chief product officer Greg Peters said working with distributors is helping Netflix reach additional consumers and that it has been able to raise the price of its service and continue to add subs.
Working with cable operators “allows us to access a set of subscribers, a consumer demographic which might be less technology early adopter than the folks that are signing us up – with us directly, and so we're able to sort of accelerate our growth in a new segment via these deals,” Peters said.
“Our job is to focus on, invest and providing our members incredible experiences, more great content, great product experiences,” he added. “And when we do that and we do it well, we earn the right to increase price a bit and then we take that new revenue, invested back into the model and that sort of continuous positive cycle we get to keep going, and we foresee that that will keep going for many years in the future.”
Wall Street ate most of this up with a spoon.
“The Netflix subscriber growth story is back on track,” said Doug Mitchelson of Credit Suisse in a report Tuesday evening.
Mitchelson increased his earnings forecast for Netflix in 2018 to $$2.63 a share.
“While management is using the faster revenue growth opportunity to continue to further ramp investment in content and technology to drive their flywheel, it is noteworthy that free cash flow burn has peaked and is set to improve in 2020,” he said.
Noting that Netflix got 'robust’ profit contributions from both its domestic and international segments, Mark Mahaney of RBC Capital Markets crowed that the ”long-term fundamental trends remain very, very, very much intact,”
Mahaney raise his target for Netflix’s stock price to $450 per share.
“We don’t believe in “open-ended growth stories. But, darn, Netflix is about as close to one as you can find in today’s market. Global subs adds are accelerating in ’18 – per our extensive survey work, the Netflix consumer value prop is compelling,” he said. “Global streaming revenue is accelerating too -- pricing power surely helps. and corporate operating margins are expanding--the advantages of a scalable model.”
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