Netflix Lost Subscribers is it losing Money?

Netflix lost subscribers in 2nd Quarter 2019, even as its platform keeps expanding. In fact, Netflix reported the first loss of streaming video subscribers in it its history.

Specifically, Netflix (NASDAQ: NFLX) lost 130,000 subscribers in the United States as its platform grew by 2.7 million users worldwide, TechCrunch estimates. The likely culprit for Netflix’s American losses is a $10.99 to $12.99 subscription hike.

Netflix’s reach is still huge, its platform reaches over 151 million people worldwide, Statista calculates. Moreover, Netflix still had 60.1 million US subscribers and 6.56 million free trial customers in America.

Netflix is Still America’s Largest TV network

Consequently, Netflix is still America’s largest TV network. In contrast, America’s most popular broadcast television network CBS (NYSE: CBS) had 2.98 million viewers on 18 July 2019, Deadline estimates.

Moreover, CBS’s viewership for the entire 2018-2019 TV season was 8.9 million. Notably, I estimate the total 2018-2019 viewership for all five of America’s broadcast networks at 28.4 million. Thus, Netflix’s American subscriber base of 60.1 million is over twice as large as all the broadcast networks put together.

In detail, there are five American broadcast TV networks, Fox, ABC, NBC, CBS, and the CW. Nielsen Media research estimates, CBS’s viewership at 8.9 million, Fox’s viewership at 5.4 million, ABC’s audience at 5.6 million, NBC’s audience at 7.2 million, and the number of people watching CW at 1.3 million.

Therefore, streaming video has replaced broadcast TV as America’s favorite non-interactive form of entertainment. The United States is still a nation of couch potatoes but Americans prefer to stream their shows.

Is Competition Killing Netflix?

Predictably, Netflix is facing a lot of competition for streaming dollars. For instance, Disney+ will feature Disney’s upcoming slate of movies, Digital Trends reports.

Presumably, that slate will include Avengers: Endgame the movie with the highest box office gross in history. The latest adventure of Earth’s mightiest heroes raked in $2.79 billion as of 21 July 2019, Entertainment Weekly calculates.

Other Disney+ goodies will include 400 to 500 movies and 7,000 episodes of TV shows, Digital Trends claims. More importantly, there are legions of rabid Disney, Marvel, and Star Wars fans willing to pay for all that video.

Interestingly, everything from the legendary Disney Vaults; except the racist Song of the South, will be available through Disney+, Walt Disney Company (NYSE: DIS) CEO Bob Iger promises. In addition, all the 21st Century properties Disney now owns, like The Simpsons and Buffy the Vampire Slayer could appear on Disney+. In fact, Disney Tweets  Disney+ will offer all 30 seasons of The Simpsons.

Not surprisingly, Disney plans several Star Wars and Marvel shows for Disney+. There will also be at least one Pixar series and some National Geographic documentaries on Disney+.

Is Disney+ a threat to Netflix?

The appearance of Disney+ shows Netflix is too successful. Bob Iger is afraid of Netflix so Disney is developing its own distribution channel to keep Netflix from building a streaming video monopoly.

Netflix should worry about Disney+ because Morgan Stanley analyst Benjamin Swinburne estimates that service could have over 130 million subscribers worldwide by 2024. In contrast, Swinburne estimates Disney+ will have only 13 million subscribers by the end of 2020, Variety reports. However, Swinburne thinks Disney could have 50 million subscribers on Hulu, Disney+, and ESPN Plus combined by the end of 2020.

Specifically, Hulu had 26.8 million paid users in the United States and 28 million US subscribers in 1st Quarter 2019, Marketrealist estimates. Moreover, Hulu claims to have added 3.8 million American subscribers in 1st Quarter 2019.

How Disney and Hulu threaten Netflix

Hulu is betting on audio with a joint $9.99 subscription with Spotify (NYSE: SPOT) lower than Netflix’s. Notably, Hulu dropped its monthly subscription to $5.99 a month in February.

Disney currently owns around 60% of Hulu, because of its Fox acquisition, and AT&T’s decision to sell 9.5% of the service, The Chicago Tribune reports. Moreover, there is speculation Comcast will sell 40% of Hulu to Disney leaving that company as king of streaming.

Disney is already a huge threat to Netflix because it makes more money. For instance, Disney reported a gross profit of $6.546 billion and a net income of $5.452 billion on 30 March 2019. Plus Disney reports a financing cash flow of $13.107 billion, an operating cash flow of $3.88 billion and a free cash flow of $2.685 billion for the quarter ending on 30 March 2019.

Is Netflix Making money?

Netflix is finally making some money from its platform. Specifically, Netflix reported a quarterly gross profit of $1.65 billion on revenues of $4.521 billion on 31 March 2019.

Additionally, Netflix had an operating income of $459.08 million and a net income of $344.05 million the same day. Interestingly, Netflix revenues grew at a rate of 22.16% in the quarter ending in March.

However, Netflix is still burning through a lot of cash. For instance, Netflix reported a negative operating cash flow of -$379 million, and a negative free cash flow of -$449.35 million on 30 March 2019. Thus, Netflix needs to spend a lot of cash to make a few dollars. Although Netflix had a $22.97 million financing cash flow.

Impressively, Netflix accumulated $3.349 billion in cash and equivalents on 30 March 2019. Thus, Netflix keep a lot of the cash its platform makes but so can Disney.

Netflix is still a Terrible Investment

One thing is still clear, Netflix (NASDAQ: NFLX) is still a terrible investment. Mr. Market grossly overpriced the stock, which pays no dividend, at $317.94 on 24 July 2019.

Meanwhile, the Walt Disney Company (NYSE: DIS) traded at $141.30  a share on the same day. Plus, Disney offered a dividend yield of 1.25%, an annualized payout of $1.76, and a payout ratio of 25.4% on the same day.

They schedule Disney to pay an 88₵ dividend on 25 July 2019. That dividend grew by 4₵ in 2019, rising from 84₵ on 26 July 2018. Currently, Disney pays dividends twice a year, instead of quarterly. Dividend.com credits Disney with two years of dividend growth.

In conclusion, I think Disney is the logical investment for streaming video, its fairly priced, it pays a dividend, and Disney’s streaming video properties could grow faster than Netflix.