January 14, 2021
Netflix is projecting subscriber growth of six million for the fiscal period ended Dec. 31, 2020 — topping 201 million subs worldwide. Michael Pachter, media analyst with Wedbush Securities in Los Angeles, said he believes that tally will come in about 1 million less at 5 million, including 300,000 in North America, largely due to recent price hikes.
“We think this is likely given the price increase implemented in late October … [where] standard monthly subscription fees went to $14 from $13 and premium fees went to $18 from $16,” Pachter wrote in a Jan. 14 note. The analyst contends the price hike will up revenue to $6.6 billion from guidance of $6.57 billion.
The longtime Netflix bear notably marveled at Netflix’s ability to keep the content pipeline fresh during the pandemic when most production in Hollywood was shut down. Specifically, Pachter cites Netflix adding foreign content across markets, cross-promoting new genres to audiences, and purchasing/reviving dormant franchises such as “The Karate Kid” (“Cobra Kai”) and “Full House” (“Fuller House”), among others.
“Netflix’s experience in adapting foreign content to new markets has resulted in the company maintaining its content quantity lead over its competitors,” Pachter wrote. “We expect that lead to be sustained for the foreseeable future.”
If there was a silver lining during the pandemic, shuttered content production accelerated Netflix’s path to generating positive free cash flow — long a sore spot for Pachter. Free cash flow typically represents the cash a company generates after accounting for fiscal outflows to support operations and maintain capital assets. Pachter is guiding $2 billion free cash flow in fiscal 2020.
But the flush FCF could be quickly erased after Netflix announced production/distribution of more than 70 original movies in 2021 — enough content to release at least one new original movie every week.
“This is an ambitious and costly goal, particularly as the service is touting its ‘A’-List-driven content,” Pachter wrote. As a result, the analyst expects Netflix to reach break-even by fiscal year 2022 as content consumption normalizes, subscribers grow and content spend again ramps higher.
Netflix reports Q4 results at market close on Jan. 19.