Netflix stock falls on weak subscriber growth

• Netflix released earnings report for Q3 2020
• Higher than expected revenue, EPS miss
• Huge slowdown in user base growth
• Company remains optimistic about 2021

Netflix (NFLX.US) reported earnings for Q3 2020 yesterday after the Wall Street session closed. Release turned out to be a disappointment, especially when it comes to user growth, and caused the stock to pull back in the after-hours trading. However, the company remains optimistic about 2021 as production resumes.

Netflix reported another quarter of record revenue. However, growth continued to slow and was the lowest since the final quarter of 2019. Source: Bloomberg, XTB

 

Results

 

Netflix generated $6.44 billion in revenue in Q3, above $6.38 billion expected by markets. Earnings per share at $1.74 were much lower than expected $2.14. However, the biggest miss came in net subscriber additions. Company said that it has added net 2.2 million users globally while analysts pointed to a 3.57 million addition. In the same period last year Netflix added net 6.8 million subscribers. Asia-Pacific region accounted for 46% of net subscriber additions in Q3 2020, thanks to big increases in Japan and South Korea.

Netflix added a disappointingly small amount of new subscribers in Q3 2020. Total subscribers growth is relatively high but this is mainly due to a big increase to the user base in the first half of 2020. Source: Bloomberg, XTB

 

Outlook

 

Company projects to add more subscribers in the final quarter of the year, in-line with seasonal trends. Netflix projects that it will add 6 million new users in Q4 2020. However, this is still considerably less than 8.8 million in Q4 2019. Slower growth was expected after the company had a stellar first half of the year. As lockdowns were lifted and people spent less time at home in Q3, user growth moderated. Netflix expects full-year free cash flow at $2 billion. Executives of the company said it has restarted production on many popular titles and that it expects to achieve year-over-year growth in terms of new titles in each quarter of 2021.

 

Market reaction

 

Netflix stock fell around 5% in extended trading Tuesday following earnings report. Stock launched today's session with a massive bearish price gap. After failed attempt to break above the resistance at $508.85, which is additionally strengthened by 50 SMA (green line), price pulled back and continues to decline. Should sellers manage to uphold the current momentum then support at $ 457.73 may be at risk.

Netflix Inc. (NFLX.US), D1 interval. Source: xStation5

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