Netflix surges back from after-hours dive as execs are unfazed by new rivals

Netflix Inc (NASDAQ:NFLX) rallied Wednesday morning after a steep post-quarterly report decline late Tuesday.

Executives at the streaming service reassured investors on a conference call Tuesday evening that impending competition from Apple (NASDAQ:AAPL) and Disney (NYSE:DIS) isn’t as troublesome as some thought, citing the difficulty in shifting from linear to on-demand content.

An analyst note from JPMorgan didn’t hurt either. The firm raised its price target to $450 from $435, MarketWatch reported.

Shares grew 1.7% to $365.48 at the open.

The stock swooned after the initial quarterly results, which smashed expectations but warned that subscriber growth will slow over the next few months.

The company, which is behind popular shows such as Stranger Things and the Crown, added a net 9.6mln customers in the opening three months of 2019, better than the 8.9mln analysts had predicted.

READ: Netflix adds 8.8mln subscribers in final quarter

That helped to push revenues 22% higher to US$4.52bn, slightly ahead of Wall Street’s estimate of US$4.50bn.

The big beat came at the bottom line though, with Netflix delivering earnings per share of US$0.76; better than the US$0.64 per share it posted in the first quarter of 2018, and well ahead of consensus of US$0.57.

Despite the beats across the board, the stock fell as much as 5% in after-hours trading in New York. It has since recovered some of those losses though, and is currently down 1% to US$355.90, valuing it as just shy of US$157bn.

Weak subscriber growth guidance

The sell-off was sparked by a warning that recent price rises have led to more customers in the US and Canada cancelling their subscriptions, although bosses believe this is a short-term issue.

Netflix expects to add a net 5.0mln subscribers in the second quarter – almost 9% fewer than it added this time last year. Only 300,000 new US customers are forecast to sign up.

The weak forecast comes at a time when competition in the streaming space is intensifying. The Walt Disney Company and Apple Inc are both set to launch their own services shortly, while Amazon.com Inc (NASDAQ:AMZN) is already well-entrenched in the sector.

Netflix is spending heavily to stay at the top of the game, so much so that it now expects cash burn to hit US$3.5bn in 2019 – some £500mln more than it had originally forecast, although management is confident this figure will ease going forward.

A couple of reasons to be cautious

Markets.com analyst Neil Wilson said there were two main reasons to be cautious.

“[Firstly,] price hikes are be rolling out across a number of key geographies and this gives management enough reason to be conservative about net new subscriber adds.

“Meanwhile, we should also look at an increasingly competitive space with Disney and Apple recently announcing their own streaming platforms. Further, we should anticipate certain plateaus in the growth cycle.”

Story by ProactiveInvestors