Though still trading below its mid-2018 and mid-2019 highs, Netflix's (NFLX) stock has risen more than 30% from its September lows, which were hit as fears ran high about Disney's (DIS) Disney+ service and (to a lesser extent) Apple's (AAPL) TV+ service.
We'll see on Tuesday if Netflix's Q4 report gives the rally fresh fuel or derails it (or, for that matter, does neither). The FactSet consensus is for Q4 revenue of $5.45 billion (up 30% annually) and GAAP EPS of $0.52. But Netflix's subscriber numbers typically have a bigger impact on how its stock moves post-earnings.
In October, Netflix guided for 7 million Q4 international streaming paid net adds and 600,000 U.S. paid net adds. And for Q1, the consensus is for 8.88 million streaming paid net adds (Netflix said in October that it will only provide global subscriber add guidance going forward.
I'll be live-blogging Netflix's report, which is expected after the bell on Tuesday, along with an "earnings interview" that's set to be published at 6 P.M. Eastern Time. Here are some things for investors to keep an eye on.
1. Disney+'s Impact on U.S. Subscriber Growth
From all indications, Disney+ is off to a stellar start. However, the service is only available for now in the U.S. and a handful of international markets (it will launch in several big European markets at the end of March). As a result, the lion's share of any Q4 and Q1 impact on Netflix's subscriber growth will have been in the U.S..
It's worth noting here that Netflix's Q4 U.S. subscriber guidance already bakes in a major decline in paid net adds relative to the 1.53 million recorded in Q4 2018. And as an aside, I think a lot of Netflix/Disney+ commentary doesn't account for the substantial differences in what Netflix and Disney+ respectively offer to consumers.
2. Regional Subscriber Growth Trends
Netflix promised in October it would start breaking out its subscribers for four regions: The U.S. and Canada, Latin America, EMEA and Asia-Pac. And in mid-December, the company (to Wall Street's approval) disclosed its revenue and streaming subscribers by region dating back to Q1 2017.
Count on the company's Q4 regional subscriber add numbers to be closely studied. As of the end of Q3, Netflix had 67.1 million U.S./Canadian subs (up 7% annually), 47.4 million EMEA subs (up 40%), 29.4 million Latin American subs (up 25%) and 14.5 million Asia-Pac subs (up 62%).
3. 2020 Content Spending Plans
Netflix forecast in October that its 2019 cash content spend would be around $15 billion -- a roughly $3 billion increase relative to 2018. The company might share a 2020 content budget on Tuesday, or at least provide some color about how it's thinking about 2020 spending.
4. Free Cash Flow Numbers
Thanks to its massive content spend, Netflix has guided for 2019 free cash flow (FCF) of negative $3.5 billion. 2020 FCF guidance is likely to be shared on Tuesday. Netflix has said a number of times that it expects FCF to improve in 2020, and also in subsequent years.
5. Commentary About Mobile-Only Plans and Subscription Discounts
Netflix said in October that the cheap, mobile-only, streaming plan it launched in India in Q3 was doing better than expected. And not long afterwards, the company both launched a mobile-only plan in Malaysia and began testing subscription discounts for Indian consumers signing up for longer periods of time.
Look for Netflix to share another detail or two about how its mobile-only plans and subscription discounts are faring, and perhaps also about where they might land next.
6. ARPU Trends
Netflix is coming off a Q3 in which its streaming average revenue per user (ARPU) rose 9% in dollars and 12% in constant currency (CC), thanks to price hikes and (to some extent) a greater mix of costlier plans. U.S. ARPU rose 16.5%, while international ARPU rose 10% in CC.
It's likely that Q4 also saw decent ARPU growth, particularly given that forex pressures have eased a bit lately. However, mobile-only plans might weigh on ARPUs some, as might the ongoing subscriber mix shift towards international markets that carry lower ARPUs than the U.S. and Canada.
This article has been corrected to state that the difference between Netflix's 2019 cash content spending guidance and its reported 2018 spending is roughly $3 billion, rather than $2 billion.