In the last quarter, Netflix's earnings report revealed that the growth of paying subscribers was not as expected, and many investment banking institutions that were optimistic about the company were exposed. Perhaps because of this, the growth data of paying users in the latest financial report report this quarter has attracted the attention of a large number of investors.
On January 20th, Beijing time, Netflix released its performance report for the fourth quarter of 2020. Among them, the year-on-year growth rate of revenue decreased again, but the net growth of paying users rebounded. Affected by the latter, Netflix's stock price rose 12.24% to 563.20 US dollars after the market, with a market value of 2216.79 billion US dollars.
Before the financial report, Netflix’s recent sharp rise in its share price is still an indisputable fact. Last year it rose by more than 60%. Among them, the "home economy" is one of the main positive factors. The number of new paying members in the first half of last year was almost the same as that of the whole of 2019.
But when the global epidemic continues, Netflix has been under the attack of competitors. Coupled with the previous-than-expected performance overdrafting the future, Netflix's performance this year is even more uncertain. Whether its global streaming media champion status will loosen has become a concern for the industry. What kind of possibility Netflix will have in 2021 may be discussed in conjunction with the financial report.
Revenue growth has slowed for four consecutive quarters, and global user value potential needs to be tapped
According to Netflix’s financial report, revenue for the fourth quarter of 2020 was US$6.644 billion, a year-on-year increase of 21.5%, slightly exceeding the previous average estimate of US$6.6 billion by Wall Street analysts.
Looking back over the past quarters, the year-on-year growth rate of revenue from Q1 to 2020 Q3 is 27.6%, 24.9%, and 22.70% respectively. This means that its revenue growth has slowed for four consecutive months.
As mentioned earlier, Netflix has outstanding user growth due to the benefit of the "home economy", which can be reflected in the income level but is somewhat unsatisfactory.
Among Netflix's revenue sources, paid revenue contributed by paying users is its revenue pillar. With revenue growth declining year-on-year, it is clear from this that Netflix's current ability to convert potential value users into actual revenue is still insufficient.
For the future, if the global epidemic is difficult to quickly control and the global economy recovers less than expected, then the ability of users to pay on streaming media platforms has a lower ceiling.
Another possibility is that when the epidemic stabilizes, offline entertainment gradually resumes, diverting people's free time. In this way, the time and expenditure left by users for Netflix may be reduced accordingly, and Netflix's revenue growth may be suppressed to a certain extent.
In terms of specific regions, North America has always been the most important source of income, followed by Europe, the Middle East and Africa. The former contributed $2.980 billion in revenue this quarter, an increase of 11.53% year-on-year, and the growth has slowed again; the latter contributed $2.137 billion, an increase of 36.72% year-on-year, showing a trend of accelerating catching up with the former.
Such performance in North America is closely related to the saturation of the video subscription market in the United States. As the competition of video streaming in the United States intensifies, consumers are experiencing a stage of subscription fatigue, which means that users need to incur additional costs when managing multiple video subscriptions.
The relatively better performance of Europe, the Middle East and Africa is naturally inseparable from Netflix's global layout. This may reflect that its business expansion in overseas markets is smooth, which can help Netflix open up room for growth in its existing business.
The fly in the ointment is that the average member income in Europe, the Middle East and Africa is US$10.88, which is lower than the US$13.40 in North America. In addition to the differences in consumption power in different regions, it also revealed that Netflix still has insufficient payment potential from users in the region.
Therefore, in the global business layout, Netflix will also need to increase investment in localized content in the future, and formulate targeted packages and charging standards to further increase the penetration rate of global users.
The growth of paid memberships has returned to the upward trend, and it is difficult for users to avoid "deversion" under content competition
In the last quarter, the net increase in the number of paying subscribers for global streaming media services was only 2.2 million, which fell short of expectations. In this quarter, Netflix recorded 8.5 million people in this data. The far-before-expected performance became an important reason for the post-market share price rise after the earnings report was released.
As of Q4 of 2020, the relevant data of paying users is divided into:
· The total number of paying users in North America reached 73.94 million, an increase of 860,000 this quarter;
· The total number of paying users in Europe, the Middle East and Africa reached 62.24 million, an increase of 4.46 million this quarter;
· The total number of paying users in Latin America reached 37.54 million, with 1.22 million newly added in the quarter;
The total number of paying users in the Asia-Pacific region reached 25.49 million, and the net increase in paying users this quarter was 1.99 million.
Previously, the management said that due to the early overdraft of a large number of users in the first half of 2020, the net payment growth in the first half of this year may continue to slow down. From this point of view, the growth of paid memberships in the fourth quarter may also be unexpected by Netflix.
Some analysts believe that Netflix's short-term prospects are more optimistic. With the slow promotion of vaccines and the ongoing pandemic, Netflix may continue to benefit from consumer habits due to staying at home longer than previously expected.
In the long run, Netflix has some risk factors in the content of original film and television works that cannot be ignored.
Netflix recently released a series of announcements, in which it announced that it will release a total of more than 70 comedy, family, and romance movies to North American members this year. It is worth noting that Netflix also revealed that it will release a homemade movie every week this year. In addition, the popular TV series since the fourth quarter of last year have also injected a lot of confidence into Netflix, such as "The Queen's Game".
In the eyes of the outside world, Netflix is making up for the shortcomings of self-made dramas in order to get closer to Disney+ as soon as possible.
However, the high standards in the production of dramas will also allow Netflix to invest more human and financial resources in content. For example, cash flow from operating activities this quarter was 138 million U.S. dollars, compared with 1.264 billion U.S. dollars in the previous quarter, turning negative again.
On the other hand, the catch-up of competitors at the content level may also continue to put pressure on Netflix.
Competitors have launched much-watched dramas this year, with old rivals such as HBO, AT&T, and Comcast on the one hand, and Disney+, Apple TV+ on the other.
According to Nielsen's statistics, the list of self-made movies in online streaming media shows that Disney+ occupies seven of the top ten. Moreover, Disney+ also holds the Marvel, Star Wars series and other ace IPs in hand. In contrast, Netflix is inferior.
This year, Netflix also lost the copyright of content such as the sitcom "The Office", and users must subscribe to Comcast to watch it. According to statistics, "Office" subscribers in the United States watched 57.1 billion minutes last year, which is by far the most popular program on streaming media platforms.
Although the current Netflix can tolerate the loss of some of the top content, it is an indisputable fact that they are flowing to competitors.
No single content can create Netflix, but Netflix must have a sense of crisis at this time.
With the sudden change of the streaming media melee, how does Netflix seek new growth stories?
For a long time, the overseas streaming media market has long been dominated by Netflix, coupled with Hulu, Apple TV + and other established streaming media platforms that have entered the game before.
At present, online and offline film and television giants have gathered together to fight the "user battle". With intensified competition, the current competitive landscape of streaming media is likely to suffer an unprecedented impact in 2021.
The public health incident at the beginning of last year caused people to spend more time watching videos at home. In this case, users may prefer long video episodes.
In the long term, people’s commuting will resume, and the fragmented time will increase. At this time, people's choice of streaming media content may change.
In such a change process, users have always had a rigid need for content consumption, and short video types will be more obvious to users. While Netflix focuses on the production of long series, the content cost remains high.
Therefore, Netflix still needs to find new business opportunities outside of the ad-free subscription model, and may consider getting involved in short dramas to fill this gap in the future. Looking at it further, Netflix, which has a huge volume, may take the integrated video platform as its future development direction.
If you do not choose to take the initiative, more new competitors will emerge. Over time, Netflix’s current opponents include almost all products with which it competes for user screens: from YouTube to Facebook, and even video games. In the last quarter, Netflix management stated that we have been competing with platforms such as Tiktok and YouTube for a long time. This may reflect that the management has begun to express concerns about the existence of short and medium videos.
It is not difficult to cross-border and penetrate each other in the forms of long and short series. Netflix’s old rivals, such as Disney+, HBO, etc., naturally have the potential to become an integrated video platform, and who can seize most of the dividends in the future will be left to the test of time.
And short video platforms such as Tiktok have become popular around the world in recent years, sharing a lot of young people's free time, and the possibility of getting closer to medium and long videos also exists. Since its launch in 2018, TikTok has become one of the most popular apps in the world. In June 2020, Kevin Mayer, the former head of Disney's streaming media business, joined TikTok as the COO of ByteDance and CEO of TikTok.
According to the Sensor Tower store intelligence data, in December 2020, Douyin and the overseas version of TikTok attracted nearly 142 million U.S. dollars in the global App Store and Google Play, which is 3.3 times that of December last year, and once again ranked the global mobile application (non-game) revenue list. champion.
In fact, such a trend has long existed. Short video content has always been the direction of Youtube's profitability, but in order to create more revenue, it has already had richer video content. Last year, many original videos were launched on the Youtube platform.
Since its development, Netflix has achieved a leading position in the world in its business, and it has sufficient ammunition in content. But in 2021, when the overseas streaming media industry is full of variables, the "ultimate mode" of video is not certain.
Over the years, Netflix has filled the platform with all kinds of programs by buying copyrights. However, with the withdrawal of these movies, Netflix can only rely on its own content to dominate the world. In addition to active attempts in the depth and breadth of content, Netflix may also need to tell investors more new stories.
Source of the article: US Stock Research Institute, please indicate the copyright for reprinting.