Netflix’s net membership growth of 15.77 million “loaded” Disney + is even more urgent

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Welcome to the wechat subscription number of “create a story”: sinacchangshiji
Wen / big entertainer
Source: yiyuguancha
Recently, we analyzed a few companies that could benefit from the epidemic. Netflix, the streaming media giant, is one of the most undisputed. After all, with the global isolation at home becoming the norm, people still need to find a way to spend their spare time, even when they work at home. Now, the streaming media, which has become the mainstream entertainment means, has almost become the only one Kill time tool, which also let Netflix in the first quarter to hand over their own probably did not expect “unexpected” financial figures.
On April 21, EDT, Netflix released its financial results for the first quarter of fiscal year 2020 as of March 31.
According to the financial report, Netflix’s revenue in the first quarter was US $5.768 billion, up 27.6% from US $4.521 billion in the same period of last year; the number of global streaming media paying users was 182.86 million, up 22.8% from US $148.86 million in the same period of last year; the net growth was 15.77 million, up 9.6 million from US $344 million in the same period of last year; the net profit was US $709 million, up 106.1% from US $344 million in the same period of last year, free cash flow record It was US $162 million, compared with us $460 million in the same period last year.
Netflix shares opened Tuesday at $444.77. As of Tuesday’s close, Netflix shares fell $3.66, or 0.84%, to $433.83. At the end of the day, the market value remained at 190.3 billion. In contrast, Disney’s market value has fallen below 190 billion, the second time that Netflix’s market value has surpassed Disney’s in the short term.
▲ Netflix and Disney stock price
Disney + has made great achievements, but it is not fully prepared in this sudden war.
The unexpected growth under the cloud of the epidemic, Netflix’s cash flow from negative to positive
Although Netflix executives have said that the user growth in the first quarter is quite amazing, a recent forecast suggests that Netflix’s new user growth in the first quarter may be between 10 million and 12 million, and even the most daring analysts gave only 8.9 million new user growth in the last quarter. After all, for a streaming media enterprise with nearly 160 million users, it has even begun to experience a negative growth stage in North America, and it is a success to achieve the expected goal.
However, the emergence of the new crown virus “black swan” makes all the “surprises” seem so logical. In the first quarter, 15.77 million new subscribers were added, setting a single quarter record of growth for Netflix for many years. In a video conference after the announcement of the financial statements, reed Hastings, CEO of Netflix, said: “the small contribution we have made is to make our lives in isolation less intolerable. Now what we can do is to do our best to do our own content and give them subtitles. People need entertainment, whether it’s in tough times or happy times, people need social distance but also need to connect with each other. ”
According to the official outlook given by Netflix in recent quarters, the first quarter of 2020 has basically achieved its growth target for the whole first two quarters. Netflix originally expected to add 7 million people in the first quarter, but the actual growth has more than doubled the expected.
In terms of specific regions, Netflix has finally experienced a long-standing million level growth in North America, with a net increase of 2.31 million in the first quarter and a total number of subscribers reaching 69.97 million, which is higher than that of the same period last year. What’s more, the total growth of Netflix users in North America last year was only 2.9 million, even a rare negative growth in the second quarter. Obviously, with the United States becoming the most seriously affected area in the world, the home quarantine policies introduced by various states have made the audience who insisted on not subscribing to Netflix in the past few years finally gave up resistance.
The Asia Pacific region, which Netflix has high hopes for, has also ushered in a new record of growth, with a net increase of 3.6 million subscribers, up from 1.53 million in the same period of last year. It is also the first time that the region has exceeded 3 million new subscribers in the past nine quarters, and the overall number of subscribers has also reached 1.84 million. In fact, from the content of the first quarter, the hot content in the Asia Pacific region accounts for a large proportion, especially a series of episodes produced by Netflix in South Korea, such as the second season of “Li Shi North Korea”, “the forced landing of love”, “Li Tai Yuan”, etc., which have become the “trump card” to attract the audience in the Asia Pacific region.
The poster of “Li Shi North Korea (the second season)”
Compared with the unexpected surprise brought by the surge of subscribers, another indicator in the financial report brings more positive information. That is, Netflix’s free cash flow, which has been criticized by the outside world all the year round, finally turned from negative to positive in the first quarter of fiscal year 2020. Net cash provided by Netflix for operating activities in this quarter was 260 million US dollars, compared with negative 380 million US dollars in the same period of last year; free cash flow was 162 million US dollars Billion US dollars, up from minus 460 million US dollars in the same period last year. In fact, this is the first time in nine quarters that Netflix has achieved positive cash flow in the current quarter.
In terms of financial figures, Netflix has been “profitable” for many years, but this is more due to its flexible application of accounting standards. Netflix’s net profit in 2019 is $1.867 billion, but its final cash flow is $3.287 billion. Therefore, for Netflix’s behavior of relying on borrowing to burn money for content, even Wall Street investment institutions that are optimistic about its business model can’t help but have doubts. The decliners have always regarded the inability to generate positive cash flow as the main criticism argument.

Netflix’s biggest cost is its huge content library. In 2019, the company amortized $9.2 billion of content expenses, and the cash expenditure seen in its cash flow statement was about $14.6 billion, because it continued to increase investment in original content for many years in a row, and realized high price renewal of some popular copyright content before possible, such as $100 million leaving friends 》One year. The above two are divided, that is, the ratio of cash expenditure to content amortization is 1.59. The larger the ratio is, the larger the difference between cash expenditure and content amortization is. This is the money burning speed often mentioned in the comments. The larger the number is, the faster the money burning speed is. This ratio has been increasing year by year since 2015, and reached an amazing 1.6 in 2018.
But in an open letter to investors in the fourth quarter of last year, Netflix said its cash flow would fall to minus $2.5 billion in 2020, while in the latest open letter to investors, that figure was revised to minus $1 billion or less.
At last year’s Q4 financial report conference call, Spence Neumann, chief financial officer of Netflix, told investors, “it is expected that content amortization will increase about 20% again in 2020, but the growth of cash expenditure will decrease, so our ratio of cash expenditure to amortization will decrease.” In other words, Netflix will slow down its “burn money” to achieve more positive cash flow performance.
▲ Spence Neumann, CFO, Netflix
So it’s not hard to see that the performance of earnings and cash flow is completely adjustable for Netflix.
Before the small amortization and large expenditure, there will be profit but negative cash flow; if Netflix in the future To reduce content production and amortize the large amount of expenditure over the past few years, there will be a large amount of amortization and a small amount of expenditure. At that time, positive cash flow will be recorded, but profits will be lost. The most ideal state is to maintain moderate content production, but have a large and stable user base, so that the revenue can cover the amortization of the current year, so that profits can be realized at the same time Positive cash flow can also be obtained. It’s clear that Netflix is moving in that direction right now.
But Netflix is not too optimistic because of the first quarter data, said reed Hastings: “the world is going through an incredible tragedy, and we don’t know what will happen in the future. I hope that everyone can go out of the house slowly next, and the growth rate of users in the second quarter should decline, estimated at 7.5 million. ”
At the same time, Netflix also said that although the content reserve in 2020 has been fully prepared, the current suspension may affect part of the schedule of 2021. And Warner media announced yesterday that HBO Max will go online on May 27, and that NBC Global’s peacock will be welcomed in the market on July 15. The competition will be more fierce after that.
Disney’s market value is surpassed by Netflix again, and the pressure is on Disney +
At the other end of the scale, Disney, an entertainment giant with huge physical projects and offline interaction, has become one of the companies hardest hit by the new crown epidemic. On April 15, EDT, Netflix’s market value reached $187.3 billion, while Disney’s market value was $186.6 billion on the same day. Netflix once again completed its Surpassing of Disney, but this surpassing lasted only one day. On the same day that Netflix announced its first quarter results, Netflix once again achieved the market value anti surpassing of Disney. This time, the market value gap between the two sides is close to $10 billion.
The last time Disney’s market value was surpassed by Netflix, the streaming media giant, was in May 2018, which made Netflix briefly become “the entertainment media company with the highest market value in the world”. It is worth mentioning that it was at the end of 2018 that Disney officially announced to expand its business to the streaming media sector, and Disney + went online one year later.
▲ Disney + interface
A simple comparison of the market value of the two companies often only has symbolic significance. No matter the business structure or development process, Netflix, which has been established for more than 20 years, is quite different from Disney, which is about to become a “century old store”, which is also reflected in the far-reaching p / E ratio of the two companies. However, the stock price volatility in recent months still reflects the different attitudes of the market towards the current situation of the two companies, especially for Disney, which is obviously more and more embarrassed by the current crisis.
During the outbreak, the only news that could make Disney happy was probably its streaming platform Disney +. On April 9, Disney announced that it had more than 50 million subscribers to Disney +, up from 28.6 million two months ago. In addition to the reasons for the outbreak, the sharp increase in its number of users also benefited from the service’s launch in the UK, India, France, Italy, Spain, Austria and Switzerland.
As the world’s important film markets have successively closed their theaters, Disney, like other traditional studios, has to choose to end the distribution of theaters in advance or shorten the time of digital copyright distribution in the past, which also makes Star Wars: Skywalker rise, ice and snow 2 and 1 / 2 of magic on the shelves in advance.
From another point of view, digital distribution in advance is actually a must. In fact, compared with Disney’s huge content library, the number and speed of original content updates of Disney + is obviously limited. Six months after the launch, the most popular content of Disney + now has and only has “Star Wars derivative drama” Mandalorian, whether it’s social media or no It’s hard for the three statistical organizations to see the discussion of other Disney + original content.

Next, the heavyweight content that Disney + will release is still the behind the scenes documentary of Mandalorian. However, due to the stop of filming caused by the epidemic, the online schedule of three new marvel dramas of Disney + platform, Falcon and winter soldier, rocky and Wanda vision, will be affected.
▲ stills of Mandalorian (first season)
With three streaming media platforms, ESPN +, Hulu and Disney +, how to further integrate and coordinate Disney’s content distribution is still a top priority for Disney.
Michael Jordan’s documentary “the last dance”, which has just set a non live rating record for ESPN channel, is its biggest competitor, Netflix, on the other hand, on the broadcast platform outside the US. This split state shows the inconsistency of content copyright distribution and the loopholes of the overall strategy within Disney. Obviously, content of the level of “the last dance” is an excellent opportunity to attract new users for Disney + which lacks original content at present, but in the end, Disneyland made a wedding dress for others.
For Disney, further integration of online resources is undoubtedly its important goal in the case of real entertainment setbacks. The real test of Disney + with good momentum at present is after the first anniversary of its launch, because some local users in the United States are experiencing through the one-year free subscription opportunities provided by Verizon. How to retain the users who “pull the wool” when the original content is limited and attract new users in the increasingly fierce competition is still a problem that Disney + will face in the future.
Even if there is no epidemic, digital and online entertainment are also important transformation directions that entertainment giants need to consider in the next decade. As Netflix CEO Hastings said, “in the next five years, online entertainment will become more and more important, and this trend has not changed at all.”.