Netflix Nears 150M Subs, Shrugs Off New Competition From Disney, Apple

Netflix surpassed subscriber and revenue forecasts in Q1 2019 while also downplaying future competition in the form of premium subscription OTT services on the way from Disney and Apple.

Netflix added 9.6 million paid streaming subs in Q1 2019 (1.74 million in the US), pushing its global total to 148.86 million, up 25.2% year-on-year. Netflix expected Q1 paid net adds of 8.9 million, including 1.6 million US subscriber adds.

Q1 revenues were $4.52 billion, up 22.1%, beating a forecast of $4.49 billion. Though subscriber adds remained strong, ARPU dipped 2% year-on-year due to "currency headwinds," the company said.

Q1 net cash flow was -$380 million versus -$237 million a year earlier, while free cash flow was -$460 million, widened from -$287 million. Netflix said the gap is mostly driven by investment in originals that have more front-end loaded spending compared to second-run licensed programming.

Netflix expects Q2 revenues of $4.92 billion, up 26.1% year-over-year, and to add 5 million paid subs internationally (but just 300,000 paid subs in the US), which would push its global paid base to 153.86 million, and 60.53 million in the US.

Netflix noted that it's working through price increases in the US, Brazil, Mexico and parts of Europe and, based on the results of a similar price increase in Canada in Q4 2018, expects gross adds to be unaffected alongside some "modest short-term churn."

Netflix isn't overly concerned about new direct-to-consumer premium subscription streaming services coming from Apple (Apple TV+) and Disney (Disney+), citing both the shift in consumer viewing dynamics and confidence in its own content library.

"We don't anticipate that these new entrants will materially affect our growth because the transition from linear to on demand entertainment is so massive and because of the differing nature of our content offerings," Netflix said in its Q1 letter to investors, noting that it expects all players to grow as more viewing pivots away from live linear TV.

And Netflix believes there's still plenty of ground to gain. "Last quarter, we talked about how our streaming hours in the US (our most mature market) on TV still only represents roughly 10% of total TV usage," the company said.

Netflix shares were down $3.97 (1.10%) to $355.49 each in after-hours trading Tuesday.

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— Jeff Baumgartner, Senior Editor, Light Reading

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