Netflix Inc. NFLX, a major subscription-based streaming video platform, said on Wednesday that global net adds for the second quarter declined approximately 50% from the net adds in the prior-year quarter.
The Los Gatos, California-based company reported it added 2.7 million global paid subscriptions for the quarter ending June 30, down approximately 2.8 million from comparable figures for the prior-year quarter and approximately 2.3 million from management forecasts.
Company stands to lose popular shows to rival streaming services
Netflix said in its quarterly letter that the lower-than-expected global net adds for the quarter were more driven by the company’s content slate and the “pull-forward effect” from the strong net adds during the first quarter than the changes in the competitive landscape. Despite this, Netflix also warned that over the next 12 months, companies like Walt Disney Co. DIS, Comcast Inc. CMCSA and top Berkshire Hathaway Inc. BRK.ABRK.B holding Apple Inc. AAPL will also start offering streaming entertainment, increasing competition within the industry.
The company also said the majority of its domestic and global Disney catalog and popular shows like “Friends” and “The Office” are expected to “wind down” over the coming years, allowing Netflix to “free up budget for more original content.” However, the same shows Netflix stands to lose are the shows its competitors will receive: According to CNBC columnist Lauren Feiner, NBCUniversal announced in June it will begin streaming “The Office” from its own platform in 2021 while HBO Max, owned by AT&T Inc.’s T WarnerMedia, announced earlier in July its new platform HBO Max will begin streaming “Friends” in 2020.
Stock tumbles more than the markets did
Shares of Netflix tumbled 12% in after-hours trading, more than the Dow Jones Industrial Average’s 0.42% decline and the Nasdaq’s 0.46% decline from Tuesday’s close.
GuruFocus ranks Netflix’s financial strength 5.6 out of 10: Although the company has a strong Altman Z-score of 5.34, its Piotroski F-score of 3 suggests poor business operations while the debt-to-Ebitda ratio of 5.46 underperforms 82.97% of global competitors. Despite this, Netflix’s profitability ranks 7 out of 10 on the heels of expanding profit margins, a three-year revenue growth rate that outperforms 83.57% of global competitors and a return on equity that outperforms 83.33% of global competitors.
Gurus with large holdings of Netflix include Spiros Segalas (Trades, Portfolio) and Chase Coleman (Trades, Portfolio)’s Tiger Global Management.
Disclosure: No positions.
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