EC Netflix Stock: The Cost Of Global Domination

Beyond Subscriber Numbers: User Engagement

Netflix is not only capturing market share from cable TV attrition, but the company is also seeping into Hollywood's addressable market. Recently, Netflix received 24 Oscar nominations, which is more than any major Hollywood studio or distributor.

High-ranking content isn't exactly new for Netflix. In both 2018 and 2019, Netflix claimed 19 of the top 20 most streamed shows. According to Christy Ezzell, senior director of TV Time, this is partly due to Netflix's investment in global audiences, including significant regional investments in foreign-language content and licensing partnerships. For instance, DARK and Elite are foreign-language originals that topped the top 20 list and beat out Amazon Prime (NASDAQ:AMZN) on all accounts, including The Marvelous Mrs. Maisel. Notably, two of these are Marvel originals and will count for Disney+ moving forward.

These charts are incredibly important for understanding user engagement as opposed to subscriber numbers. For instance, Amazon is reportedly in the number two spot for OTT services, yet is absent from the top 20 list for content. (I suspect subscriber numbers are skewed with Amazon Prime members who subscribe for the free one-day shipping or Whole Foods discounts, yet are more loyal to Netflix in their viewing habits).

Keep this in mind, as both Disney+ and Apple TV+ attract users with free promotions. Subscribers may sign up, yet use the service very little compared to Netflix's level of engagement.

Netflix's Latest Earnings

On most accounts, the earnings report proved Netflix's resilience to pressure from upstart competitors Disney+ and Apple TV+. The company reported 8.8 million new paid subscribers compared with expectations of 7.9 million. In the U.S., there were a net new 550,000 subscribers versus 589,000 expected. International came in at 8.33 million, better than forecasts of 7.17 million. In total, the company had 167 million global paid subscriptions.

Furthermore, Netflix's numbers put a price tag on global domination: Free cash flow (FCF) was an astonishing negative $3.3 billion for 2019. The company forecasts negative free cash flow of $2.5 billion for this year. It's expensive to produce high-quality local originals for many geographic regions. Still, the company said in its release that the "plan is to continually improve FCF each year and to move slowly toward FCF positive."


Interestingly enough, many criticize Netflix for continuing its lead at 87% of subscribers through 2023. Again, they are also missing the point that this is the law of large numbers, as a leader cannot hit 100% of all OTT households and now Netflix must look outside of the United States for growth.

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