As expected, the surge in new SVOD services from Disney and Apple is having an impact on Netflix.
The SVOD pioneer Jan. 21 announced it added 8.8 million subscribers in the fourth quarter, ended Dec. 31, 2019. That topped company and Wall Street estimates of 7.6 million subs. The streamer added 420,000 subs in the U.S., which was down from 600,000 projected. It added 130,000 subs in Canada.
Netflix added 1.75 million subs in the U.S. and Canada in the previous-year period. The service ended Q4 with 167 million subscribers worldwide, including topping 100 million outside the U.S. That is up more than 20% from the previous-year period. The service finished with 67 million subs in North America.
Follow us on Instagram
CEO Reed Hastings and CFO Spencer Neumann, in a shareholder letter, attributed the North American decline to domestic price hikes and new competing services such as Disney+ and Apple TV+.
“Our low membership growth in [U.S. and Canada] is probably due to our recent price changes and to U.S. competitive launches,” Hastings and Neumann wrote. “We have seen more muted impact from competitive launches outside the U.S. (NL, CA, AU). As always, we are working hard to improve our service to combat these factors and push net adds higher over time.”
For the current first quarter (ending March 31), Netflix is forecasting global paid net adds of 7 million, which is down 2.6 million from the 9.6 million added in Q1 in 2019, which was an all-time company high in quarterly paid net adds.
Subscribe HERE to the FREE Media Play News Daily Newsletter!
Hastings and Neumann cited “lightly elevated churn levels” in the current quarter, with expectations for more “balanced” paid net adds across Q1 and Q2 this year — on par with 2018 rather than 2019.
“This is due in part to the timing of last year’s price changes and a strong upcoming Q2 content slate, where we’ll have some of our bigger titles like ’La Casa De Papel’ (a.k.a. ’Money Heist’) launching.”
On the content front, Netflix said the December 2019 debut of “The Witcher” is tracking to be one of the streamer’s biggest first-season TV series ever. Through its first four weeks of release, 76 million subscriber households have viewed parts of the action-fantasy, starring Henry Cavill. Netflix counts any viewer watching at least two minutes of a program.
“As a testament to how our hit content can penetrate the global zeitgeist and influence popular culture, the show’s launch drove up sales of ’The Witcher’ books and games around the world, and spawned a viral musical hit,” Hastings and Neumann wrote.
The executives said major SVOD competition is still in its infancy as rival media companies transition from linear TV to over-the-top video distribution.
“We have a big head start in streaming and will work to build on that by focusing on the same thing we have focused on for the past 22 years — pleasing members,” they wrote. “We believe if we do that well, Netflix will continue to prosper.”
On the fiscal front, the service ballooned net income to $587 million on revenue of $5.46 billion, compared to net income of $133 million and revenue of $4.18 billion in the previous-year period.
For the fiscal year, Netflix reported profit of $1.86 billion on record revenue of $20.15 billion, compared to profit of $1.21 billion on revenue of $15.8 billion in 2018.
At the same time, Netflix’s liabilities and long-term debt continue to escalate. Total current liabilities increased to $6.85 billion from $6.48 billion, while long-term debt surpassed $14.75 billion from $10.36 billion. Overall fiscal liabilities now exceed $26.4 billion from $20.73 billion at the end of 2018.
Indeed, in Q4, net cash used in operating activities increased to a negative $1.5 billion compared to negative $1.2 billion in the prior-year period. Free cash flow (FCF) in Q4 — the cash left over after a company pays for its operating expenses and capital expenditures — totaled negative $1.7 billion vs. (-$1.3 billion) in Q4’18.
For the full year, FCF was a record negative $3.3 2 billion, which Netflix believes is “the peak in our annual FCF deficit.”