[Overseas Stocks Spotlight] "Netflix's Subscriber Growth to Slow Down in the Second Half"

[Asia Economy Reporter Eunmo Koo] Netflix (NFLX US) continued its strong performance in the second quarter by surpassing market expectations for subscriber growth, following the previous quarter. However, as it gradually recovers from the impact of the novel coronavirus disease (COVID-19), the pace of subscriber growth is expected to slow down in the second half of the year.

On the 16th (U.S. local time), Netflix announced its second-quarter earnings, reporting revenue of $6.15 billion (approximately 7.4 trillion KRW), a 25% increase compared to $4.92 billion in the same period last year. Net profit surged about 160% to $720 million (approximately 867.6 billion KRW) from $270 million in Q2 last year.

Due to the increase in platform users amid the COVID-19 pandemic, the net subscriber increase in Q2 was 10.09 million, a 34.5% rise compared to the Q1 guidance of 7.5 million. Operating profit increased by 23.4% compared to consensus, thanks to reduced content production costs due to delays in production.

Despite the strong performance, the stock price fell due to the third-quarter revenue guidance falling short of expectations. Netflix provided Q3 revenue guidance of $6.04 billion, 5.6% below consensus, which led to more than a 10% drop in after-hours trading. Junseop Kim, a researcher at KB Securities, explained that Netflix’s conservative Q3 guidance compared to market expectations was likely influenced by “a slowdown in demand for OTT services as the impact of COVID-19 wanes and the possibility of existing paid subscriber churn due to content supply delays.” He added, “However, the core issue seems to be the market’s heightened expectations following the steep subscriber growth in Q1 and Q2.”

Having consecutively exceeded market expectations for subscriber numbers and maintained a strong upward rally, Netflix is expected to enter a pause phase. However, considering its online-focused business structure and original content lineup, its competitive advantage is likely to continue for the time being. Minha Choi, a researcher at Samsung Securities, analyzed, “Considering production lead times, the impact on original content releases this year is limited, and the resumption of content production in many countries is positive. Local original content is driving high buzz and viewership in each country, so unlike the mature North American market, it is necessary to increase new subscribers in the Asia-Pacific region through localization strategies using local content to overcome market concerns.”

Netflix’s stock direction is also expected to influence the stock prices of Korean tech companies going forward. Netflix described TikTok’s growth as remarkable and mentioned the rapid changes in the digital video streaming market, announcing a strategy to maintain much faster content development and service improvements than competitors. However, concerns about growth slowdown due to intensified competition are emerging.

Minjung Kim, a researcher at Hi Investment & Securities, said, “The expected solid Q2 earnings and subscriber growth have already been largely priced into the stock, and with growing concerns about growth slowdown in the second half, short-term investment sentiment is expected to weaken. Looking at Netflix’s stock trend, Korean tech stocks that have surged so far will likely face short-term price corrections if the non-face-to-face economy fails to translate into earnings improvements after the second half.”

This content was produced with the assistance of AI translation services.