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Netflix share price: where next as paid subscribers hit 167 million?

The Netflix (NFLX) share price rose during after-hours trade following the release of the company’s fourth quarter earnings results.

Netflix share price in focus Source: Bloomberg

The market does strange things sometimes.

When Netflix (NFLX) – the once-thought untouchable streaming giant reported its Q4 earnings results to the market – its stock initially dipped in after-hours US trade, dropping to a low of US$332 per share.

It soon reversed however, and from that low rallied as much at 4.76% in the next few hours – hitting a high of US$348.

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Netflix share price: Q4 subscriber momentum

All up, Netflix’s growth story looks to remain intact, with the company now boasting a little more than 167 million paid subscribers, across the globe.

'During the quarter, we surpassed 100 million paid memberships outside of the US. Streaming entertainment is a global phenomenon and we're working hard to build on our early progress.’

Looking at the streaming giant’s all-important subscriber numbers, we see that Netflix posted a strong beat on paid streaming subscribers, reporting an increase of 8.76 million paid subscribers during Q4 – well ahead of analyst estimates of 7.65 million subscriber adds, according to Bloomberg Data.

In saying that, Q1 FY20 subscriber guidance did come in a shade soft, according to Bloomberg Intelligence – with Netflix guiding for 7.00 million paid subscribers in Q1 FY20. Analysts were previously expecting Q1 subscriber additions of 7.82 million.

On a more granular level, Netflix also undershot on domestic subscriber growth. Originally suggested by CNBC as explaining Netflix’s short-lived after-market dip, the news network noted that domestic subscriber adds came in at ‘550,000 vs. 589,000 expected, per FactSet estimates.’

Fundamentals in focus

Netflix’s conventional financial metrics also exhibited good growth during the quarter. Here, NFLX reported robust top-line figures, with overall revenue increasing 31% on a year-over-year basis – with FY19 revenue hitting US$20 billion.

Bottom-line results also trended up – with operating income rising 62% in FY19 – to US$2.6 billion.

U.S. tax changes also resulted in the company reporting higher net income than operating income in the fourth quarter: US$587 million in net income; compared to US$459 million in operating income.

Where next for Netflix?

Though the company posted good operational figures and subscriber numbers today, investors and analysts are likely still concerned with the dynamically evolving streaming market.

Disney (NYSE: DIS), for example, a recent entrant in the streaming market, clocked up 10 million subscribers in its first day of operations. The Disney share price is up ~10% since that launch.

Apple, Amazon, Hulu and CBS all have streaming services of their own that compete with Netflix in the US. In Australia, Foxtel, Stan and Disney all compete with Netflix directly.

Yet for all those concerns, Netflix’s management team seems mostly undeterred:

‘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. We believe if we do that well, Netflix will continue to prosper.’

According to Bloomberg Intelligence, Netflix’s dominant position in the streaming market does indeed make the company hard to ‘unseat’; though this dominance has come at a lofty cost, as Netflix continues to spend big on producing original content.

Ultimately, only time will tell if Netflix can remain at the top of the streaming market. After all, for every Myspace, there is usually a Facebook in waiting.

Netflix is forecasting that total paid subscribers will hit 174 million by the end of Q1 FY20.

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