What To Expect From Netflix Post-Q1 Results

Netflix‘s (NASDAQ: NFLX) Q1 earnings per share and revenues both beat consensus estimates in its Q1 results. The company reported net streaming additions of 9.6 million in the quarter. In Q1, the company’s revenues grew a robust 22% year-over-year (y-o-y) to $4.5 billion, driven by growth in subscribers across both the U.S. and international streaming markets. The international subscriber base continued to increase at a rapid pace (33% y-o-y) once again, while the domestic subscriber base growth stabilized in the low double digits.

Netflix saw its stock gain nearly 35% over the course of 2019. We have a $378 price estimate for Netflix’s stock, which is slightly ahead of the current market price. We have created an interactive dashboard on What Has Driven Netflix’s Recent Results, which outlines our forecasts for the upcoming quarter and full-year 2019. You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation, and see more Trefis Media data here. 

Q2 Expectations 

• Netflix expects 5 million global paid net additions (around 300k net adds in the U.S. and 4.7 million internationally), compared to a 5.4 million consensus estimate.
• The company has guided for its total revenues to reach $4.9 billion in Q2 2019. The company also expects an operating margin of 12.5% in Q1.
• Netflix also raised its prices in the U.S. and some Latin American markets. Netflix’s new pricing in the U.S. will be phased in for existing members over Q1 and Q2, and its U.S. prices for new members are increasing across the board – the Standard plan (two HD streams) is increasing from $10.99 to $12.99 per month; the Premium plan (up to four Ultra HD streams) is increasing from $13.99 to $15.99 per month; and the Basic plan (with a single non-HD stream) is increasing for the first time, from $7.99 to $8.99 per month. This will help boost the company’s average revenue per customer over the coming quarters.
• We forecast Netflix to reach 64 million subscribers (including free trials) in the U.S., with an average monthly fee per subscriber of over $11.50, translating into $2.2 billion in domestic streaming revenues for Q2. In addition, we also estimate nearly 100 million subscribers in international markets with an average monthly fee per subscriber of $8.70, translating into about $2.6 billion in international streaming revenues in the same period.

• Netflix has been growing its subscribers by leveraging its original content slate, and we expect this to continue in the near term as well. On the other hand, Netflix’s DVD business is expected to continue to lose steam, and its revenues will likely decline to just over $77 million.

Fiscal 2019 Expectations

• We expect the company to report close to $20.5 billion in revenues in 2019, with $9.3 billion revenues in the domestic streaming segment and $11 billion in the international streaming segment.
• The U.S. market for streaming content is getting more saturated due to strong competitive pressure, which is expected to intensify once Disney launches its own direct-to-consumer offering Disney+. This service is also priced significantly cheaper than Netflix (at $7 per month versus $13)
• Netflix reported negative cash flow of $3 billion for 2018 and now expects 2019 free cash flow deficit to be modestly higher at approximately -$3.5 billion, due to higher cash taxes related to the change in its corporate structure and additional investments in real estate and other infrastructure.
• The company expects free cash flow to improve in 2020 and each year thereafter, driven by its growing subscriber base, revenues, and operating margins.

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