Netflix Q4– On to stage 2

Content will be the key asset for Netflix from here.

• Netflix handsomely beat forecasts with Q4 revenues / EPS of $1.18bn / $0.79 compared to forecasts of $1.17bn / $0.66
• Subscriber numbers were also strong with 2.33m added in the last quarter taking the total to 44.4m worldwide. 41.4m of these accounts are paying Netflix money.
• US subscribers were 31.7m passing arch rival HBO’s total and international subscribers came to nearly 10m.
• International subs. grew 20% compared to 6% for US domestic.
• Guidance was also positive with another 2.25m users expected to be added and revenues / EPS of $1.27bn (implied) / $0.78.
• This compares favourably to forecasts of $1.24bn / $0.75.
• The real surprise was in the subscriber number where the street has been worried about a slowdown in subscriber additions.
• Netflix has established itself as the leading OTT (over-the-top) television provider soundly beating efforts from the great and the good in the technology and media industries.
• The argument about whether this is a viable media delivery conduit is over and from here on the company is going to be driven by content.
• Here Netflix is not sitting still and has committed to spend $7.75bn on original content.
• It has been doing well with smash hits such as House of Cards and Orange is the New Black.
• As its competitors such as HBO, Google, Amazon and the entire cable TV industry catch up its current technology and user experience edge will be competed away.
• Therefore only availability of content will drive Netflix’s growth in the long term and here it must continue to own content that can be exclusive on its own system.
• The net neutrality problem (see here) is unlikely to cause an issue for the short-term but there is a risk that the ISPs eventually decide to bleed Netflix dry in return for allowing its streaming to be delivered to the users in a usable way.
• Netflix has the first mover advantage and its ease of use and availability is accelerating the move away from traditional broadcast much to the TV industry’s dismay.
• However the sleeping denizens have been prodded awake and their resources far outweigh those of Netflix.
• Long term success will be determined by the shrewdness of its content executives in how they spend the relatively limited content budget.
• This is not without risk and at nearly 200x 2014 PER much of the good news is already priced in.
• If I am paying nosebleed multiples, I would rather own Amazon.