09 May 2019Reading time: 3 minutes

For a longer time Netflix has been growing strongly and maintained this trend throughout the first quarter of 2019. In the past quarter the online streaming service welcomed 9,6 million new paying members, which is an increase of 16 percent compared to the first quarter of 2018. Therefore the total amount of paying members rose on an annual basis with 25,2 percent to 148,9 million. The figures were better than what Netflix and analysts were expecting in advance. Also the revenue of the company increased in the first quarter with 22,2 percent to 4,5 billion dollar, while the net profit rose with 18,6 percent to 344 million dollar.

However, the free cash flow for the past quarter was 450 million dollar negative. One year earlier the cash flow was 287 million dollar negative. Due to extra investments and higher tax rates, Netflix expects that the free cash flow for the whole of 2019 will be approximately 3,5 billion dollar negative. The company has repeated its expectation that free cash flow will improve from 2020.

For the current quarter Netflix expects to gain 5 million new members worldwide, which is way lower than the 6 million new members that analysts expected in advance. However, the second quarter is usually the slowest quarter of the year for Netflix.

One thing that should be taken into account is how long the current members will accept that Netflix is slowly increasing its prices. After a price increase in the United States, Netflix has also increased its prices in several European countries, Brazil, Mexico and Canada. For example, in The Netherlands the prices for a monthly membership increased with 2 euro on average.

These higher prices could lead to unhappy customers, especially because Disney+ will charge way lower prices. On November 12th this year Disney will launch its own online streaming service in the US, among others, where membership prices will start at 6,99 dollar per month. In the US a Netflix membership costs 10,99 dollar per month.

Research from Mindnet Analytics shows that 14,5 percent of all the current Netflix members in the US, considers to cancel their subscription to Netflix and switch to Disney+. This would concern 8,7 million members. Netflix expects that the new competition won’t affect their growth due to the variety of content they offer. However, some analysts do take in account that Netflix in time has to work with advertisements in order to maintain their profitability. It remains to be seen if Netflix can withstand the competitive pressure from Disney and other online streaming services.

At this moment (02-05-2019) the stock price of Netflix is at 378,81 dollar, which is an increase of more than 41 percent compared to a year earlier. On an annual basis the stock price is approximately 21 percent higher.

The future price of the stock is subject to several political, industrial and sector specific as well as economic factors. Investors should consider these risks when making their investment decisions. Developments can be different at any time than investors anticipated on, which could result in capital losses.

Vontobel products on Netflix are tradable at DEGIRO.

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26/09/2021 02:05:19