Netflix announced its first-quarter financial results Tuesday, and the news has many industry analysts shrugging off concerns of price hike-fueled churn and competition from Disney+ and WarnerMedia.
The SVOD giant outpaced its subscriber growth estimates by adding 9.6 million new paid subscribers during the quarter, putting the company at about 149 million total paid subscribers. For the second quarter, Netflix is projecting total paid net adds of 5 million (300,000 in the U.S. and 4.7 million internationally), down 8% year over year.
The impact of recent price increases across the U.S., Brazil, Mexico and parts of Europe showed up in lower subscriber growth estimates and higher revenue estimates. UBS analyst Eric Sheridan said that while those will be the short-term focuses, investors should look ahead to Netflix’s pricing power in developed markets and potential for pricing tiers in developing economies to open up greater scale.
“As a result, over the LT, we see NFLX as a top pick as it capitalizes on the [opportunity] to be the global leader in streaming media & the competitive moat around its business widens (via a mix of content spend, marketing, & scale),” Sheridan wrote.
In regards to competition from Apple TV+, Disney+ and WarnerMedia, Barclays analyst Kannan Venkateshwar said Netflix could actually benefit from legacy media companies focusing on the needs of a specific demographic such as families or sports fans.
“As these services proliferate, Netflix effectively becomes the only pure play service to address almost all demographics and in that sense, its role becomes akin to a legacy broadcaster. Therefore, we believe in some ways, the launch of multiple new services ironically helps further emphasize the value of Netflix for consumers,” wrote Venkateshwar in a research note.
MoffettNathanson analyst Michael Nathanson focused on Disney+, which is launching Nov. 12 and will be priced at $6.99 per month or $69.99 per year, and its potential impact on Netflix.
He said that Disney+’s low price point and relative high quality could make it difficult for Netflix to continue raising its prices. He also said that the market’s glowing response to Disney’s direct-to-consumer streaming plans could cause WarnerMedia to rethink its plans and shift to focusing on HBO as its global SVOD brand.
Finally, Nathanson said that as deep-pocketed competitors like Apple, Disney and possibly HBO flood the market, the SVOD business model’s ROI will lower under the pressure to keep the original content coming and to market it.
“As more high-profile catalog content leave NFLX and new SVOD choices explode on the scene, we have been dogmatic that the SVOD business model is not akin to the traditional dual-stream, cash generative media industry,” wrote Nathanson. “We continue to believe that NFLX is over-valued at current levels and don’t recommend buying shares until the risk-reward turns more favorable.”