Netflix misses earnings and subs forecasts for Q3; co-CEOS comment on exec shake-ups

Netflix Project Development Accelerator - credit CFC
The company says it is "optimistic" it will complete shooting on more than 150 productions globally by year's end, in addition to the more than 50 productions it has already wrapped.

Global streaming service Netflix has reported falling short of its own projections for subscriber growth, and those of Wall Street for subs and earnings per share in its letter to shareholders for the third quarter of 2020.

While the company had cautioned in its last financial report that subscriber growth would slow following the “record first half results” brought on by the COVID-19 pandemic and ensuing global lockdowns, it still fell short of the 2.5 million new subscribers it had predicted for the quarter, with 2.2 million signing on for the service. That number also falls short of Wall Street’s expectations for new subscribers, which came in at 3.57 million, according to FactSet.

In Q3 of 2019, new paid subscriber numbers came in at 6.8 million.

As for earnings per share, Netflix reported US$1.74 in Q3, compared to $1.47 a year ago, which again fell short of analysts’ expectations of $2.14, as estimated by Refinitiv.

Revenue, however, came in slightly ahead of the Street’s estimates, at $6.44 billion, as opposed to the expected $6.38 billion, via Refinitiv.

Geographically, the bulk of new subscriptions came from the APAC region, with 46% of global paid net adds for the quarter. “We’re pleased with the progress we’re making in this region and, in particular, that we’ve achieved double digit penetration of broadband homes in both South Korea and Japan,” the company offered in its letter to shareholders. “While this is encouraging, we still have much work to do and we’re working hard to replicate this success in India and other countries.”

Regarding projections for growth in the immediate future, the company added: “The state of the pandemic and its impact continues to make projections very uncertain, but as the world hopefully recovers in 2021, we would expect that our growth will revert back to levels similar to pre-COVID. In turn, we expect paid net adds are likely to be down year over year in the first half of 2021 as compared to the big spike in paid net adds we experienced in the first half of 2020. We continue to view quarter-to-quarter fluctuations in paid net adds as not that meaningful in the context of the long run adoption of internet entertainment, which we believe is still early and should provide us with many years of strong future growth as we continue to improve our service.”

From a content perspective, the company revealed via its shareholder letter that its two top docs to air on the service to date were launched in Q3, with American Murder: The Family Next Door projected to bring in 52 million member households in its first 28 days, and The Social Dilemma clocking in at 38 million in the same timeframe.

Netflix also pointed to the success of its global unscripted original series, Indian Matchmaking, “which was watched by a quarter of our members in India and millions of members outside of India in its first four weeks.”

The company says it is “optimistic” that it will complete shooting on more than 150 productions globally by year-end, in addition to the more than 50 productions that it has already completed principal photography on since the reboot of production following the industry shutdown imposed by COVID-19. For 2021, the company predicts that “we continue to expect the number of Netflix originals launched on our service to be up year over year in each quarter.”

During an earnings interview posted on Tuesday (Oct. 20), co-CEOs Reed Hastings and Ted Sarandos discussed the recent executive changes at the streamer, including the departure of longtime originals VP Cindy Holland, occurring in tandem with the promotion of Bela Bajaria to head of global TV, and the exit of recent originals VP hire Channing Dungey, who was named as head of Warner Bros. Television Group earlier this week.

Those moves come within a general environment of flux in the TV industry which is seeing many major players – ranging from WBTVG with the Dungey hire, to NBCUniversal, ViacomCBS and ITV in the UK – reshaping their businesses to make streaming divisions, and producing content for those divisions, more of a priority.

Sarandos said the Netflix TV group restructuring that saw the promotion of Bajaria was intended to mirror the structure of its film and animation teams, as “one global organization,” and cited how Bajaria handled her international unscripted remit in her earlier position – “[She] brought in that team from scratch and developed this incredible unscripted slate that we have today.”

As for the departures of Holland and Dungey, Sarandos said, “Whenever you put new change at the top there is going to be some downstream effects as well.”

Hastings added: “No one gets to keep the cup for free, you’ve got it earn it every year, which is intensely challenging and we all love that part of it.”