Netflix Q4 2019 weak results in the U.S. show that Disney+ is impacting the streaming giant more than it lets on. The problem will worsen in 2020. Disney+ not only increases competition for new subscribers but also restrains any price increases Netflix is planning.
Q4 mixed results
On the face of it, Q4 was another good quarter for Netflix. It grew total paid subscribers 8.8 million, over a million more than it forecast. It also increased revenue 31% over Q4 2018 to reach $5.5 billion, again slightly ahead of the estimate it gave in October. Annual subscriber gains were an impressive 27.8 million, reaching 167 million. Revenue gained 28% to hit $20.1 billion.
Despite the seemingly impressive performance, Wall Street was not impressed. The stock fell $9, or 2.6% Wednesday the 22nd. Investors were reacting to the weak performance in the U.S. Netflix gained the fewest subscribers – just 420,000 – in any fourth quarter since 2011. Last year in Q4, the company won 1.5 million new paying customers.
The company’s explanation for the poor performance in the U.S. was twofold: the impact of price increases and more competition. The price increase argument has some merit since Netflix lost subscribers for the first time in Q2 when the price increases occurred. Moreover, Q3 growth was half what it was one year earlier. However, the Disney+ release in November also seems to have had an impact since Q4 growth was under a third seen in Q4 2018.
Regions dominated by U.S., Europe
U.S. and Canada (UCAN) – weakest growth, highest ARPU
UCAN Subscriber growth slowed to a crawl in 2019. The region added a little under 3 million customers, with 2 million coming in the first quarter. However, average revenue per unit (ARPU) per month is the highest of the four regions Netflix reports, at $13.22. What’s more, ARPU is growing faster than any other region, guaranteeing that it will remain Netflix’s most significant revenue source for the next several years.
Europe, Middle East, and Africa (EMEA) – on-track to be Netflix’s largest market
EMEA subscriber growth continues to be healthy, delivering 14 million new paying customers in 2019. Growth may slow in 2020 as Disney+ starts to roll out on March 24th. However, even with the slowdown, EMEA will likely pass UCAN in the number of subscribers before the end of 2021.
Growing ARPU will be more challenging. Netflix has been able to eke out a $0.31 per month increase over there year, to reach $10.51. However, low Disney+ pricing will restrain any significant price increases for at least the rest of 2020.
Latin America (LATAM) – steady sub growth, flat ARPU
Netflix has been available in LATAM for eight years and continues to grow there. However, its growth tracks the rollout of broadband, which has been slow. Over the last year, paying subscribers increased 5.3 million and, with no published plans for Disney+ to release there, will likely maintain that pace in 2020.
ARPU growth has been weak for the last three years, increasing a modest $0.30 to reach $8.18 a month. Expect no increase in 2020 as Netflix continues to drive penetration in the market.
Asia Pacific (APAC) – growing subs, falling ARPU
APAC is Netflix’s most challenging region. It has introduced a low-priced mobile-only tier in three markets – India, Indonesia, and Malaysia – to help compete with low-cost services such as iflix and Hotstar. According to Greg Peters, Chief Product Officer at Netflix, the low-priced plans are doing well, though the growth rate in Q3 and Q4 was no higher than in 2018. That said, APAC is the fastest-growing region, increasing 53% to reach 16.2 million.
ARPU is another matter. The low-cost mobile plans have caused ARPU to fall $0.12 a month in 2019, to settle at $9.07 per month. Expect further ARPU erosion as the low-priced tier roles out in other regions.
Outlook for 2020 – slower sub growth, slower revenue growth
The malaise that has hit Netflix Q4 2019 results in the U.S. could spread to Europe as Disney+ rolls out in the region. Expect subscriber growth to slow in EMEA in Q2 and beyond. Revenue growth could slow even more, as two factors drag it down:
- Slowing subscriber growth in regions where Disney+ launches
- Inability to raise prices in those regions due to Disney’s aggressive pricing.