All Eyes on Netflix Satellite As It Orbits Fiscal Sun

Netflix Oct. 20 will release fiscal third-quarter (ended Sept. 30) results after the market closes. While a traditional flag bearer among media/tech companies during financials, this 90-day period brings added scrutiny. Netflix has been on a tear. Its stock has catapulted 75% since mid-March when the pandemic started — reaching a near all-time high Oct. 16.

But can the SVOD pioneer sustain its skyrocketing subscriber growth during the pandemic, and, secondarily, can it overcome the media/legal fallout from criminal charges alleging the service streamed “lewd material of children” in the French-language movie Cuties?

To be sure, Netflix has tempered its own fiscal expectations, projecting 2.5 million total sub additions worldwide. That’s less than the market consensus of 3.26 million subs. Wedbush Securities media analyst Michael Pachter said he believes the SVOD giant added just 250,000 domestic subs and 2.3 million internationally in the quarter. Netflix added a record 25.9 million subs in the first six months of the year — more than it did for the entire 2019.

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Analysts expect operating income of $1.29 billion, while Netflix is projecting $1.24 billion. Over the past 2 years, Netflix has topped earnings-per-share estimates 75% of the time, while trumping revenue projections 75% of the time.

While industry scuttlebutt suggests Netflix lost millions of subs in the quarter due to the controversy over Cuties — a fictional movie about an 11-year-old Senegalese girl coming of age in 21st century Paris against the backdrop of a religious mother and peer pressure from a young female dance troupe — Pachter thinks increased content demands from housebound subs drove churn higher.Follow us HERE on Twitter!The analyst contends that with the increased numbers of consumers still largely confined to home entertainment due to COVID-19, the lack of new original content on Netflix will increase service dissatisfaction.“The extraordinary level of consumption of Netflix content multiplied by its large subscriber base suggests to us that some meaningful percentage of subscribers will ‘finish’ Netflix before a large quantity of new content can be produced,” Pachter wrote in a note.The analyst said Netflix is facing a potential loss of 2 million subs per quarter going forward without a significant increase in original content. Indeed, recent data from Nielsen found that among Netflix’s most-popular shows, 50% were network reruns.“The law of large numbers suggests to us that if the rate of subscriber churn grows by ‘only’ 1%, Netflix could face an uptick loss of subscribers per quarter beginning later this year or early next year,” Pachter wrote. “We suspect that this phenomenon has already begun and led to the company’s lackluster guidance for Q3 net additions.”

AT&T: 890,000 Pay-TV/OTT Subs Lost in Q1; Drops Fiscal Guidance

AT&T had a problem with pay-TV subscriber retention before the pandemic. First-quarter fiscal results (ended March 31) suggest COVID-19 hasn’t spared the telecom, with management saying the virus cost upwards of 5 cents-per-share in pre-tax earnings, or about $360 million.

AT&T said it lost 897,000 pay-TV subscribers in the quarter, which include DirecTV and U-verse. It also lost 138,000 over-the-top video subs, which includes recently launched AT&T TV. The company ended the quarter with just 788,000 streaming video subs compared to 1.5 million a year ago. Pay-TV subs totaled 18.5 million compared with 23.4 million last year — a loss of 4.9 million subs over the past 12 months.

“It’s impossible to state the impact COVID-19 is having on all of us,” CEO Randall Stephenson said on the fiscal call. AT&T contends 60% of revenue and 70% of pre-tax earnings come from the company’s core communication business, including enterprise network, broadband and wireless.

“These businesses have proven to be resilient and they help provide a recurring stream of revenue and solid cash flows even in times of economic stress,” COO John Stankey said.

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“Without [COVID-19], the quarter was about what we expected — strong wireless numbers that covered the HBO Max investment, and produced stable [pre-tax] earnings and margins,” Stephenson said in a statement.

The executive said AT&T maintains a strong cash position and balance sheet, with core businesses continuing to generate free cash flow — even in today’s environment.

“In light of the pandemic’s economic impact, we’ve already adjusted our capital allocation plans and suspended all share retirements,” Stephenson said. “As a result, we’re able to continue investing in critical growth areas like 5G, broadband and HBO Max, while maintaining our dividend commitment and paying down debt.”

Regardless, CFO John Stephens said AT&T expects increased cord cutting among pay-TV subscribers, in addition to lower revenue from hospitality businesses such as hotels, bars and restaurants.

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Netflix Hits Q1 Subscriber Growth Home Run; Management Downplays Significance

As expected, Netflix benefited spectacularly from global shelter-in-place mandates, adding 15.8 million subscribers worldwide in the first quarter (ended March 31), to end the period with nearly 183 million subs. Netflix added 2.3 million subs in North America, up from 1.88 million a year ago.

The subscription streaming video pioneer had projected subscriber growth of 7 million and a global sub base of 174 million.

In the shareholder letter, Netflix was quick to downplay the subscriber surge, attributing it largely to global fears about the coronavirus spread. Founder/CEO Reed Hastings and CFO Spencer Neumann instead focused on Netflix’s relief efforts taken to help staff and production personnel around the world impacted by job losses and shuttered facilities.

“Like other home entertainment services, we’re seeing temporarily higher viewing and increased membership growth,” Hastings and Neumann wrote. “In our case, this is offset by a sharply stronger U.S. dollar, depressing our international revenue, resulting in revenue-as-forecast.” ​

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The executives said they expect viewing to decline and membership growth to decelerate as home confinement ends, “which we hope is soon.”

“By helping people connect with stories they love, we are able to provide comfort and escape as well as a sense of community during this pandemic,” they wrote. “So our focus has been on maintaining the quality of our service while our employees around the world adapt to working from home.”

Lastly, the executives expressed a “thank you on behalf of all our employees” to the “heroic” doctors, nurses and first responders fighting pandemic on frontlines around the world, including grocery, restaurant and other essential workers “who take risks to make sure our families are fed and taken care of.”

“We are truly inspired and humbled by you,” Hastings and Neumann wrote.

Hastings’ focus on relief efforts underscores his pre-Netflix volunteer commitments with the Peace Corps and as a math teacher in Swaziland, among other goodwill endeavors.

As previously reported, Netflix in March created a ​$100 million fund​ to help with hardship in the industry, including paying production crews for seven weeks while idled, with the goal of providing a bridge until government safety nets kick in.

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The streamer is also donating $30 million to third parties and non-profits, providing emergency relief to out-of-work crew and cast across the broader TV and film industry in countries where it has a large production base. This includes donations of $1 million each to the ​SAG-AFTRA Foundation COVID-19 Disaster Fund​, the Motion Picture and Television Fund​ and the ​Actors Fund Emergency Assistance​ in the U.S., and $1 million between the ​AFC​ and ​Foundation des Artistes​ in Canada.

“These are all well established hardship funds,” Hastings and Neumann wrote.

Other funds Netflix contributed to include £1 million to the ​British Film Institute, €1 million to the ​Italian Film Commission, €1 million to ​Audiens​ in France, R$5 million to the ​Brazilian Institute of Audiovisual Content​, $1 million to the ​Mexican Academy of Film Arts and Sciences, ​€​1 million to Spain’s ​Ministry of Culture and Sport, Accion Cultural and the Film Academy; and ​€​1 million to the Netherlands Film Fund​.

“In total, we have committed to spend $150 million supporting the industry through this crisis,” Hastings and Neumann wrote.

Meanwhile, Netflix expects to add another 7.5 million subs in the current quarter (ending June 30), to finish the half-year mark with more than 190 million subs — up more than 25% year-over-year.

“Given the uncertainty on home confinement timing, this is mostly guesswork,” read the letter. “The actual Q2 numbers could end up well below or well above that, depending on many factors, including when people can go back to their social lives in various countries and how much people take a break from television after the lockdown.”

Netflix said the ongoing shutdown has thus far had a modest impact on new releases involving language dubbing. While admitting to be in the dark about the future as anyone, Netflix said it is spending less cash this year as some content projects are pushed out.

“Our content competitors and suppliers will be impacted about as much as we are, in terms of new titles,” read the letter. “Since we have a large library with thousands of titles for viewing and very strong recommendations, our member satisfaction may be less impacted than our peers’ by a shortage of new content, but it will take time to tell.”

Finally, Netflix generated $64 million in Q1 from its legacy by-mail DVD and Blu-ray Disc rental business — down from $80.6 million in the previous-year period. It did not disclose how many packaged media subscribers it has.

GameStop to Close 200 Underperforming Stores, With More to Follow

Following a nightmarish fiscal quarter, GameStop said it plans to shutter upwards of 200 underperforming stores nationwide, with more closures to follow.

CFO James Bell disclosed the move during the retailer’s Sept. 10 fiscal call that followed a second quarter (ended Aug. 3) that saw the company post a net loss of more than $400 million — or $32 million when excluding impairment charges.

Regardless, revenue for the world’s largest video game retailer fell more than 14% to $1.28 billion from more than $1.5 billion during the previous-year period.

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“While these [store] closures were more opportunistic, we are applying a more definitive, analytic approach, including profit levels and sales transferability, that we expect will yield a much larger tranche of closures over the coming 12 to 24 months,” Bell said.

At its peak, GameStop operated 9,000 stores worldwide. It now operates more than 5,700 across 14 countries.

GameStop continues to be undermined by changing consumer habits, which include moves toward subscription-based online gaming instead of disc-based consoles.

Major manufacturers Sony and Microsoft have plans to role out new consoles in 2020 that still include disc drives.

TiVo Narrows Q2 Fiscal Loss

DVR pioneer TiVo is in the process of transitioning its hardware and intellectual property (i.e. patents) into separate operating businesses.

In the meantime, the current combined company continues to right its fiscal ship — narrowing the second-quarter (ended June 30) net loss nearly 54% to $9.54 million from a net loss of $20.5 million during the previous-year period.

Total revenue increased nearly 2% to $176.1 million from $172.8 million last year. Through the first six months of the fiscal year, TiVo revenue is down about 8% at $334.4 million from $362.6 million.

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The bulk of revenue comes from TiVo’s portfolio of IP patents enabling third-party pay-TV operators to offer subscribers on-demand content, video recording, content recommendation and related viewership data.

Indeed, TiVo said it has expanded its third-party advertising functionality to include promotions surrounding VOD movie transactions.

 

The company said promo campaigns deliver strong performance results, including an 81% increase in digital transactions for a Hollywood studio using the software over three weekends to promote a new movie title.

Licensing, services and software revenue increased 3% to $174.4 million, while hardware sales fell about 50% to $1.67 million.

CEO Dave Shull said TiVo remains on track to separate the businesses.

“Based on my experience with strategic transactions and operational transformations, we are making great progress on the separation of TiVo’s Product and IP Licensing businesses,” Shull said in a statement. “We remain on track to complete the separation in the first half of 2020.”

GameStop Calls Off Company Sale, Stock Plummets

Shares of GameStop were down more than 23% in early trading Jan. 29 after the company announced it was canceling efforts to sell the world’s largest video game retailer.

The Grapevine, Texas company, which operates more than 5,800 retail locations in 14 countries, said is continuing the search process to appoint a permanent CEO and is working with an executive search firm.

In June 2018, GameStop’s board began discussions with third parties regarding a potential sale of the company. The board terminated sale efforts due to the lack of available financing on terms that would be commercially acceptable to a prospective acquirer.

GameStop earlier this year sold its Spring Mobile business generating about $735 million in cash. It plans to use the funds pay down outstanding debt, fund share repurchases, and reinvest in core video game and collectibles businesses.

As of Nov. 3, 2018, GameStop had $820 million of outstanding debt, $350 million of which carries a 5.50% interest rate and is due on Oct. 1, 2019. The elimination of that debt will represent annualized savings of roughly 14 cents per share, according to Wedbush Securities digital media analyst Michael Pachter.

“GameStop should be a primary beneficiary from the console refresh in 2020 or 2021, and it remains the dominant force in the video game industry’s pre-owned segment,” Pachter wrote in a Jan. 29 note.

Earlier this month, GameStop reported a 5% decline in global 2018 winter holiday revenue to $2.63 billion, compared to the nine-week holiday period ended Dec. 30, 2017.

 

Netflix Posts Record Q4 Subscriber Growth

Netflix Jan. 17 reported it added 7.3 million net new paid subscribers internationally in the fourth quarter (ended Dec. 31, 2018) — which was above company projections of 6.1 million. In the United States, Netflix added 1.53 million paid subs, compared to projections of 1.5 million.

Netflix no longer combines new subs on trial basis with paid additions. As a result, Netflix said it had 2.07 million new trial subs in the U.S., in addition to 7.13 million internationally.

The service ended the period with 139 million paid subscribers, up 9 million paid members from the start of the quarter and 29 million from Jan. 1, 2018. Netflix added 22 million subs in 2017.

The SVOD pioneer grew quarterly revenue 35% to $16 billion, nearly doubling operating income to $1.6 billion.

Netflix said that through its first four weeks, original movie Bird Box, starring Sandra Bullock, was streamed by more than 80 million household worldwide.

The service said its original feature films continue to generate audiences in the home and in theaters. Five weeks after its debut, Roma from director Alfonso Cuaron is still playing on 900 screens worldwide — including some 70mm format projections.

Netflix said it service commands about 10% of all TV screen time in the U.S., and about half as much on mobile devices.

“There are thousands of competitors in this highly fragmented market vying to entertain consumers,” wrote CEO Reed Hastings and CFO Spencer Neumann in the investor letter. “Our growth is based on how good our experience is to subscribers … not on Disney+, Amazon Prime Video or others.”

Finally, Netflix ended the period with 2.7 million disc renters — down from 3.3 million during the previous-year period. The legacy segment generated $51.4 million operating profit on revenue of $85.1 million. That compared to operating profit of $62.6 million and revenue $105.1 million last year

Netflix Tops Q3 Sub Growth Forecast with Nearly 7 Million Additions

Netflix Oct. 16 returned to business as usual, reporting record third-quarter (ended Sept. 30) global subscriber growth of nearly 7 million, including 1 million in the United States – beating company projections. The service ended the period with 137 million subs, including 130 million paid.

The SVOD pioneer generated nearly $4 billion in revenue, up 34% from the previous-year period of nearly $3 billion. Net income tripled to $403 million from $130 million last year.

“Our broad slate of original programming helped drive a solid quarter of growth,” CEO Reed Hastings wrote in the shareholder letter. “We’re thrilled to be growing Internet entertainment across the globe.”

On the flip side, free cash flow ballooned 85% to $859 million from $465 million as Netflix continues to spend large on original content. Third-party streaming content obligations reached $18.6 billion compared to $17 billion last year.

Free cash flow is the cash a company produces through its operations, less the cost of expenditures on assets. In other words, FCF is the cash left over after a company pays for its operating expenses and capital expenditures.

“We recognize we are making huge cash investments in content, and we want to assure our investors that we have the same high confidence in the underlying economics as our cash investments in the past,” CEO Reed Hastings wrote in the shareholder letter. “These investments we see as very likely to help us to keep our revenue and operating profits growing for a very long time ahead.”

Indeed, Netflix believes negative free cash flow will be closer to $3 billion than $4 billion for the full year 2018 as the FCF deficit year to date is negative $1.7 billion.

Finally, Netflix ended the period with more than 2.8 million by-mail disc subscribers, compared with 3.5 million last year. The packaged media unit generated $51.6 million operating profit on revenue of $88.7 million. That compared to operating income of $63.1 million and revenue of $110.2 million last year.

Disc Sale Declines Undermine BBC Worldwide Fiscal Revenue

BBC Worldwide July 11 said it generated £1.04 billion ($1.38 billion) in fiscal year revenue, ended March 31. That compared to revenue of £1.05 billion ($1.39 billion) during the previous-year period.

The BBC, which combined BBC Worldwide with BBC Studios in April into a single entity, attributed the revenue dip in part to declining packaged media sales, including DVD.

Regardless, pre-tax earnings increased 42% to £118.3 million ($157 million) from £83.5 million ($110 million) last year. The BBC said the increase reflected strong content sales, cost efficiencies across branded services and overhead savings.

Other highlights included BritBox, the North American SVOD service partnership with ITV, ended the fiscal year with 250,000 subscribers after bowing service in Canada.

BBC Worldwide entered into several new global deals during the fiscal year, including with Shanghai Media Group Pictures (a leading Chinese media company), which will see an expansion of the “Doctor Who” brand in China and partnerships with Foxtel, ABC, Sky and Fetch were cemented with new or continued deals in Australia and New Zealand.

Original program, “Blue Planet II,” proved a major success with international audiences, with the premiere becoming the most-watched ad-supported nature episode in nearly eight years on BBC America. “Planet Earth: Blue Planet II” amassed more than 250 million views on Chinese VOD platform Tencent in Q4, ending Dec. 31, 2017.

 

GameStop Q1 Profit Declines 52%; Company Names Interim CEO

GameStop May 31 reported first-quarter (ended May 5) profit of $28.2 million, down 52% from profit of $59 million during the previous-year period. Revenue declined 5.4% to $1.9 billion from $2 billion last year.

The nation’s largest video game retail chain attributed the decline in large part to year-over-year comparisons with Nintendo’s bow of the Switch platform.

New hardware sales decreased 7.9%, while new software sales decreased 10.3%. Software sales were impacted by the strength of titles across platforms that launched in the prior fiscal year. Pre-owned sales declined 5.8% and worldwide omnichannel sales decreased 46% due to limited allocation of the Nintendo Switch at launch, which drove 93% increase in omnichannel sales in the first quarter of fiscal 2017.

Digital sales increased 29.6%, excluding the first quarter 2017 revenue from Kongregate, which was sold in July 2017. On a reported basis, digital sales decreased 2.5% to $43.0 million.

Collectibles sales increased 24.4% to $142.4 million, driven by continued expansion of licensed merchandise offerings and unique product offerings.

Technology Brands sales decreased 16.1% to $169.0 million, primarily due to less promotional activity and the overlap of the previously disclosed change in AT&T’s dealer compensation structure from the previous year. Technology Brands operating earnings reached $9.8 million. Technology Brands operating earnings, excluding store closure and other charges, were $11.2 million compared to $18.4 million in the prior-year quarter.

Separately, GameStop announced that Shane Kim, currently a board member and former Microsoft executive, will serve as interim CEO until a permanent CEO is named. Rob Lloydwas promoted to COO and CFO. Previous interim CEO Dan DeMatteo will continue serving as executive chairman of the board.

“We are fortunate to have Shane assume the role … and welcome his insight as a video game industry veteran,” DeMatteo said in a statement. “Shane has been an actively engaged member of the board since 2011, and will bring additional executive focus, energy and passion to the organization during this time of transition.”