Netflix Misses On Domestic Subscribers But Beats Earnings Estimates - Netflix (NASDAQ:NFLX)

What a relief took place on Wednesday after the bell, causing Netflix Inc's NFLX stock to jump 8% after its third quarter earnings results were released. Netflix managed to beat earnings estimates and exceeded expectations when it comes to its international segment. But the streaming-pioneer is still not out of the woods as by mid-November, new debuts are bound to change the streaming game landscape for good.

Third Quarter Results

So, Netflix managed to beat on earnings, but also slightly missed analyst's expectations for revenue. But really slightly as it was $5.24 billion compared to $5.25 billion expected. On the bright side, it did exceed expectations when it comes to international paid ads which amounted to 6.26 million compared to the 6.05 million expected by FactSet. By adding 6.8 million paid subscribers overall, it now has now has more than 160 million global subscribers.

Threats on the Horizon

Domestic paid subscriptions remained below estimates as the additions were 517,000 versus the 802,000 expected, per FactSet estimates. But what's most threatening is that by November 12, two of the most profitable companies in the US will have made their streaming debut. With the launch of Apple TV+ AAPL and Disney+ DIS, the digital entertainment platform may never be the same. But, in its letter to shareholders, Netflix said that it welcomes upcoming competition from these two, as well as Comcast Corporation's CMCSA NBC Universal and AT&T Inc's WarnerMedia T who both reshaped its hierarchy in anticipation of the upcoming streaming wars.

Netflix stated that it finds these launches beneficial because it will only accelerate the shift for people to move away from traditional methods of watching television to opting for a bundle of streaming products, but believing that Netflix will be at the core of this mix. But the company that will truly benefit from all these launches is the much less mentioned ROKU ROKU which is the most popular streaming media platform which covers a base of 39% of installed media streamers. Now with the launch of Apple's TV app, Roku is enabling Apple to significantly expand the potential audience of its Apple TV Plus significantly.

All of the above launches will surely accelerate the shift from linear TV to on demand consumption of entertainment. But Netflix does expect these launches to be too noisy and only sees them as mild headwinds in the next quarter. Quite confident, to say the least yet the strategies used by the tech pioneer, the entertainment giant and others are everything but the same. In fact, they couldn't be more different, so we'll just have to wait and see which one will show to be the most appealing to subscribers.

Expected Fourth Quarter Results

Netflix also touched on its content strategy saying it's not afraid to take "bold swings" when necessary as the streaming wars will only grow in intensity. But the company also emphasized that it won't "chase every deal on the table." For the fourth quarter, Netflix expects revenue of $5.4 billion resulting in earnings of 51 cents per share. When it comes to global adds, the company is expecting a drop from the same quarter last year which was 8.8 million to come down to 7.6 million.

Outlook

Many are worried that this quarter doesn't reflect how will Netflix be able to handle the streaming wars that are upon the company. Yet, Netflix is confident considering it is competing with Amazon.com, Inc. AMZN, YouTube, its direct competitor Hulu, joint venture of the Walt Disney Company and Comcast's NBC Universal. And there's linear TV, so Netflix has been dealing with competitors for over a decade.

While the new competitors have great catalogue titles, the company finds that none have the variety, diversity and quality of new original programming that Netflix is offering globally. Whether the company is overconfident or not is a different issue, but much lower US growth than expected is definitely a problem. It will be hard for Netflix to continue growing in the US, as the pricing power is limited and the domestic demand is possibly saturated. But as for now, Netflix stock rose 2.5% to close trading Thursday at $293.35 a share.

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